A Real Estate Investment Trust (REIT) is a vehicle that allows an investor to obtain broadly similar returns from their investment, as they would have, had they invested directly in property. The vehicle is a limited company (or a group of such companies), required to invest mainly in property and to pay out 90% of the profits from its property rental business as measured for tax purposes as dividends to shareholders.

Dividends are generally taxable at their marginal rate as profits of a UK property rental business. Gains on disposal of shares in the REIT are chargeable to tax under the normal rules for disposing of shares. The Property Income Dividends (PID) are treated as UK property business income, but this is exempt in the hands of a charity investor under either s485 of the Corporation Tax Act 2010 or s531 of the Income Tax Act 2007.

Charities should aim to have the PID paid gross in the first place, as it is not safe to assume that the REIT knows that it can pay PIDs gross to a charity investor. However, it should not be difficult to arrange this with the REIT by following the guidance at GREIT08125. The REIT should be able to satisfy itself that it is dealing with a genuine charity by checking its registration status or, as HMRC confirms, by the charity providing a simple declaration to that effect.

If the REIT deducts tax from a PID the charity can reclaim it from HMRC by filing online to complete a spreadsheet.