The UK REIT market – what is happening?

The UK real estate investment trust (REIT) market has only been in existence for just under twenty years and for the first fifteen of those it was dominated by a small number of the biggest property companies in the UK. However, since 2022, a new “private REIT” regime has been implemented, leading to an uptake in parties taking advantage of the various benefits of REITs without having to undertake the onerous requirement of being a listed company. In this article we look at recent developments and why REIT status is popular.

When SEGRO accepted a £14bn share and cash offer for US logistics company Prologis it put UK REITs back in the spotlight. The deal itself, representing a 14% premium over SEGRO’s adjusted NAV of 905 pence per share as at 30 June 2026, is expected to complete in the first half of 2027, whilst it obtains various shareholder, court and regulatory approvals. SEGRO became a REIT at the first available opportunity in the UK, on 1 January 2007. Its takeover is, in more ways than one, a big deal.

Large, listed REITs such as SEGRO offer scale, liquidity and relatively straightforward access to income-generating real estate. However, alongside the listed REIT market, we are becoming accustomed to unlisted REITs forming part of the holding structure for real estate transactions, particularly where the structure needs to be one that can hold property assets efficiently while retaining the flexibility to undertake private capital, joint venture and portfolio acquisition activities.

What is a UK REIT?

A UK REIT is not a separate legal form in its own right. It is a company, though not necessarily an English company (or group headed by a company) that has elected into a specialist tax regime for qualifying property rental businesses. The central attraction of the regime is that, broadly, qualifying property rental business profits and gains are exempt from UK corporation tax within the REIT, with tax typically being addressed when profits are distributed to investors.

Entry into the REIT regime is not automatic. A UK REIT must satisfy a range of conditions:

• The parent entity being solely UK tax resident
• Having one class of share
• Carrying on a property rental business with either (a) 3 properties with no single property being more than 40% of the total value of the properties or (b) one property with a value of at least £20m
• At least 75% of its profits and assets generated by the property rental business (PRB)
• 90% of PRB profits for each accounting period must be distributed annually before the relevant UK corporation tax deadline
• property profits need to be at least 1.25x the associated financing costs, otherwise there may be a penalty tax charge.

Why consider an unlisted UK REIT?

Listed UK REITs provide public market access to diversified property portfolios and, as the SEGRO situation shows, can become major strategic platforms in their own right.

Unlisted UK REITs are different. They do not offer public market liquidity in the same way. In that context, the REIT regime can be considered alongside other familiar real estate holding structures, such as English Limited Partnerships and Jersey Property Unit Trusts.

Potential advantages

1. Tax efficiency for qualifying rental businesses

The core attraction of a UK REIT is the corporation tax treatment of qualifying property rental business profits and gains. UK REITs are exempt from corporation tax on property rental business profits and on gains from direct and indirect sales of property rental business properties, while remaining subject to corporation tax on other activities. For investors focused on long-term rental income from UK commercial property, that can be a positive feature. It may help remove a layer of tax at vehicle level, subject to the detailed rules and the investors’ own tax positions.

2. A UK corporate structure

A REIT can be attractive to investors who prefer a UK corporate vehicle rather than a partnership or offshore trust structure. That may assist from a governance, familiarity, lender diligence and operational perspective. Companies have legal personality, can hold assets in their own name and can contract directly. By contrast, JPUTs and English Limited Partnerships do not have separate legal personality, with assets held by trustees or through a general partner, nominee or special purpose vehicle.

3. Familiarity for institutional capital

The REIT concept is familiar to many institutional investors, even where the vehicle is not listed. For pension funds, sovereign wealth investors, insurers and other long-term capital providers, a REIT can offer a recognised framework for holding income-producing real estate. That does not remove the need for investor-specific tax or regulatory advice, but it can make the structuring conversation easier than introducing a less familiar vehicle.

4. Potentially useful for acquisition strategies

Where investors are building a portfolio of income-generating assets, an unlisted UK REIT may provide a platform for future acquisitions. The UK REIT conditions include requirements around the property rental business and diversification or minimum property value, so the structure may be better suited to portfolios, larger single assets or aggregation strategies than to very small or highly bespoke transactions.

Potential disadvantages

1. Conditions

A REIT must continue to satisfy the relevant rules, including those relating to the nature of its business, distribution of profits, balance of assets and profits, and financing costs. This means governance, reporting and monitoring need to be built into the structure from the outset. The REIT may also need appropriate controls to ensure that future acquisitions, disposals, borrowings and non-rental activities do not create issues.

2. Lack of flexibility

A UK REIT must distribute 90% of its property rental business profits annually. That is attractive for investors seeking regular income, but it may be less attractive where the business plan relies on retaining cash for capital expenditure, development, debt reduction or rapid re-investment. In those cases, the required distribution profile needs to be considered carefully alongside the asset strategy and financing model.

3. Qualification specificity

A key practical point is that the favourable REIT treatment is focused on property rental business income. Income arising from arrangements such as contractual assignments of rental income, or loans to landowners secured by charges over land, may fall outside property rental business treatment because the REIT has not itself acquired an estate or interest in land.

4. Withholding tax and investor tax position

Profits and gains benefiting from the REIT exemption are subject to UK withholding tax when distributed to investors, with exemptions potentially being available for certain overseas investors. This means the REIT analysis cannot stop at the vehicle level. The investor base matters. Different investors may have different tax profiles, treaty positions, exemptions or reporting requirements. A structure that works well for one group of investors may be less efficient for another.

5. Other taxes still apply

REIT status does not remove all UK tax costs. Taxes such as SDLT, VAT and business rates can continue to apply to UK REITs in the same way as to other companies without REIT status.

Conclusion and our experience

We expect the number of private UK REITs used to hold UK income-producing real estate to continue to rise, as was the intention behind the various changes made in 2023 to the applicable tax regime.

Burges Salmon’s Corporate Real Estate team has extensive experience in establishing and acting for UK REITs.

With a team of Built Environment lawyers qualified across England, Wales, Scotland and Northern Ireland, we support clients on real estate matters across jurisdictions and project types. Our Corporate Real Estate team works closely with colleagues in construction, planning, tax, litigation, environmental and finance to provide integrated support throughout the lifecycle of real estate assets.

We have experience across many sectors including logistics, hospitality, office, residential (including build-to-rent and student accommodation), and large-scale regeneration schemes.

If you would like to explore any of the topics discussed above, please contact Jonathan Cantor (Partner, Corporate and M&A) or Matthew Pegler (Solicitor, Corporate and M&A).