Proposals to provide authorised property unit trusts with the same tax efficient status as Real Estate Investment Trusts (Reits) were outlined in the budget yesterday (21 March).
Gordon Brown’s final Budget included the long awaited proposal to drop the 20 per cent corporation tax currently applied to these vehicles, putting them at a disadvantage to tax-efficient Reits.
Partner at Berwin Leighton Paisner, Cathryn Vanderspar, commented: “The funds industry is confident that this proposal will go ahead. The advantage is that it will put authorised property unit trusts on a level playing field with Reits. It is definitely positive that this issue has been acknowledged.”
The budget also revealed plans to increase Islamic finance activity in London with tax relief for sukuks.
The move comes after the government announced its drive to make London the western capital of Islamic finance.
Norton Rose has been advising the Treasury on how best to implement tax reliefs for sharia compliant bonds and encourage the growth of this market in the UK.
Partner and global head of Islamic finance at Norton Rose, Neil Miller, said: “I think this is a necessary move for Islamic finance in London which will encourage the market to open up in the UK.”
Companies issuing sukuks will be able to offset the coupon payments on the securities against the company’s profits for corporation tax purposes.
Miller said: “Sukuks are a natural progression for the UK and we will start to see a developments in this area over the next two years.”