STOCK market-listed property firms were yesterday given a year’s notice to prepare for the biggest shake-up that the sector has faced.

The Treasury said that the planned tax-efficient real estate investment trusts (Reits) would be introduced in January 2007.

It confirmed that Reits would be available to closed-ended UK companies that are listed on a recognised stock exchange. These companies would then pay no corporation tax on their qualifying property rental profits and would be required to distribute 95 per cent of such profits to investors, who will then pay tax at their marginal rates.

The Treasury said that the regime would allow some flexibility for companies to pursue activities other than investment in property, such as property development or services to tenants, but the majority of income should come from property rental.

Phil Nicklin, a tax partner at Deloitte, the accountant, said the plans were in line with industry expectations, but he was surprised at proposals to limit the amount of debt a company can have in a UK Reit.

Under the proposals, the ratio of taxable profits to interest payments must exceed a ratio of 2.5 to 1. Mr Nicklin said this restriction may cause problems for existing quoted property companies wishing to convert into a Reit, because many have high gearing. “The Treasury should have allowed gearing to be dictated by the market, which works perfectly well in other countries,” he said.

The Treasury plans to levy a conversion charge for companies wishing to convert to Reit status, but no details will be available until the next Budget.

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