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LONDON-British finance minister Gordon Brown says the government will legislate next year to allow REITs. The draft legislation and tax details will be published before the end of this year.

“To widen the number of investors in the residential and commercial property markets, we will this month publish legislation to set up in Britain Real Estate Investment Trusts that will increase the funding of new property developments,” Brown said yesterday in Parliament. Brown’s report added that REITs will be exempt from corporation tax on rental income and chargeable gains but be required to distribute at least 95% of net taxable profits on rental income to investors.

The pre-Budget Report document stressed the view that any REIT market must not cut overall tax revenues for the government. In the US, REITs generally carry out their investment activities tax-free provided they pay a high proportion of their earnings in taxable dividends, usually making them high-yield stocks.

JP Morgan Asset Management predicted earlier this year that the flood of net new capital pouring into European real estate could reach euros 1 trillion ($1.18 trillion) over the next few years, as pension funds increase their property weightings. “It is encouraging they [the government] have committed to 2006 and adopted the tax-exempt model,” said statement from the British Property Federation.

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