Investments 

Property tax rules prompt change at £1.3bn F&C trust

Property tax rules prompt change at £1.3bn F&C trust

A tax on offshore landlords introduced by the coalition government has prompted the board of the F&C Commercial Property investment trust to change its structure.

In its results announcement for 2018, the trust's board announced that, due to the tax on offshore landlords introduced in 2015, it was switching the structure of the trust to become a real estate investment trust, instead of a company registered in the Channel Islands but listed on the London Stock Exchange.

Chris Russell, the trust's chairman, said the previous structure had left the trust open to UK corporation tax.

Real estate investment trusts do not pay corporation tax as long as they commit to paying out a certain level of the cash they generate from rental income to shareholders.  

In his note to shareholders he wrote: “In addition, from 6 April 2019 non-resident landlords who invest in UK properties, such as the group as it is currently structured, will be brought into the UK capital gains tax regime.

"The board has determined that action is necessary to preserve the ongoing effectiveness of the company from a UK tax perspective."

The move is subject to shareholder approval. The trust will also change its name to incorporate BMO, the company that took over management of the trust when it bought F&C fund management in 2014.

The trust pays a dividend of 0.5p per month, paid monthly, with a current dividend yield of 5 per cent. The trust’s manager, Richard Kirby, said the focus is to ensure the dividend is fully covered by the cash generated by the trust, rather than grow the cash amount of the dividend payment. 

The trust trades at a discount to its net asset value of 12 per cent.

Over the past three years the trust has returned 2.04 per cent, while its sector, the AIC Property Direct UK, gained 17.7 per cent.

david.thorpe@ft.com