A UK real estate investment trust (REIT) is a property company that pays no UK tax on the income and gains of its property rental business, provided it pays out 90% of its rental profits to shareholders (HMRC). You buy REIT shares on a stock exchange, so you own a slice of a property portfolio without being anyone’s landlord. The trade-off is that the share price moves with the stock market and can sit well below the value of the buildings. The REITs UK investors usually hold are listed companies inside this regime, and they are the subject of this explainer.
For income investors the tax detail matters. The rental part of a REIT’s payout, the property income distribution (PID), is taxed as property income, so from 6 April 2027 it falls under the new property rates of 22%, 42% and 47% in England, Wales and Northern Ireland when held outside an ISA or pension (HMRC technical note). Inside a stocks and shares ISA or a registered pension scheme, PIDs are paid without tax deducted. Figures here are as at 9 October 2026.
How the UK REIT regime works
The regime was introduced by the Finance Act 2006 and now sits in Part 12 of the Corporation Tax Act 2010 (HMRC). A company or group elects in and must keep meeting a set of tests. The main ones, from HMRC’s Investment Funds Manual, are:
- It is resident in the UK for tax and nowhere else, and it is not an open-ended investment company (HMRC).
- Its shares are admitted to trading on a recognised stock exchange or, for accounting periods starting on or after 1 April 2022, at least 70% of its ordinary shares are owned by institutional investors (HMRC).
- Its property rental business holds three or more single properties (HMRC).
- At least 75% of its profits and 75% of its assets relate to the property rental business (HMRC).
- It distributes 90% of the income profits of the property rental business, plus 100% of any UK REIT investment profits, by the corporation tax filing date (HMRC).
The distribution rule is what makes REITs income vehicles. The company cannot retain most of its rental profit, so growth has to come from rising rents, rising property values, or new money raised from shareholders and lenders.
How REIT payouts are taxed
A REIT payout can have two parts, and your dividend voucher shows the split (HMRC). The PID comes from the tax-exempt rental business and is treated as income from a UK property business. It is paid after deduction of income tax at the basic rate, which is 20% in the 2026 to 2027 tax year (gov.uk). Any other dividend, from profits outside the rental business, is an ordinary dividend paid without deduction (HMRC).
Ordinary dividends fall under the £500 dividend allowance and then the dividend rates of 10.75%, 35.75% and 39.35% for 2026 to 2027 (gov.uk). PIDs do not use the dividend allowance, because they are property income. HMRC’s technical note confirms that property income for the new rates includes property income distributions from investment funds, and that from the 2027 to 2028 tax year the PID withholding rate moves to the property basic rate of 22%, through amended secondary legislation (HMRC technical note; HMRC policy paper).
| REIT payout | In a stocks and shares ISA or registered pension | Outside a wrapper, 2026 to 2027 | Outside a wrapper, from 6 April 2027 |
|---|---|---|---|
| Property income distribution (PID) | Paid gross; no tax on ISA income | Taxed as property income at 20%, 40% or 45%; 20% deducted at source | Property rates of 22%, 42% or 47% (England, Wales and Northern Ireland); 22% deducted at source |
| Ordinary dividend | No tax on ISA income | £500 allowance, then 10.75%, 35.75% or 39.35% | Dividend rates unaffected by the April 2027 property and savings changes |
Sources: HMRC, gov.uk, gov.uk, gov.uk and the HMRC technical note. Tax deducted at source counts towards your bill; if your rate is higher, you owe the difference. Scottish taxpayers pay Scottish rates on income other than savings and dividends (gov.uk), and the Scottish Parliament and the Senedd have powers to set their own property rates from 2027 to 2028. Our guide to the April 2027 property income rates covers the detail.
REITs in ISAs and SIPPs
Shares qualify for a stocks and shares ISA if they are officially listed on a recognised stock exchange or admitted to trading on a recognised exchange in the UK or the European Economic Area (HMRC). Inside an ISA you pay no tax on income or capital gains, and you do not declare them on a tax return (gov.uk). HMRC lets REITs pay PIDs gross to ISA managers and to the administrators of registered pension schemes, which include SIPPs (HMRC). The 20% deduction that applies in a general investment account therefore does not arise. For how ISAs, pensions and taxable accounts fit together, see our guide to tax-efficient investing.
What REITs own
A REIT’s rental business can be offices, shops, warehouses, homes or other let buildings. The Association of Investment Companies (AIC) groups property investment companies into sectors including UK commercial, UK residential, UK logistics and Europe (AIC). Each behaves differently. A warehouse let on a long lease to one tenant is a different risk from a shopping centre with dozens of short leases, and a REIT focused on one sector concentrates that risk.
Four things drive returns: rent collected, changes in property values, the cost and amount of debt, and the price the market puts on the shares. A REIT that borrows magnifies gains and losses in its property values, in the same way a mortgage does for a landlord.
Discounts to net asset value
Net asset value (NAV) is the value of the properties and other assets, less debt, per share. The AIC defines a discount as “the amount, expressed as a percentage, by which an investment trust’s share price is less than its net asset value per share” (AIC). The same measure is used for REITs.
A hypothetical example shows why it matters. If NAV is 100p and the shares trade at 80p, the discount is 20%. If the discount narrows to 10% with NAV unchanged, the price rises to 90p, a gain of 12.5%. If it widens to 30%, the price falls to 70p, a loss of 12.5%. The buildings have not changed in value in either case.
Discounts can move fast. The AIC reported that the average investment company discount widened from 3.6% on 31 December 2021 to 14.3% on 18 November 2022, with property sectors among the widest (AIC, 22 November 2022). Past performance is not a guide to future returns.
REITs versus open-ended property funds
Open-ended property funds buy buildings directly and create or cancel units at a price based on the value of the property. There is no discount, but there is a liquidity problem: the fund must find cash for redemptions, and buildings are slow to sell. The FCA says “Repeated lengthy suspensions in the sector show that AFMs [authorised fund managers] cannot always maintain the promise of quick liquidity” (FCA CP26/35).
Its consultation of 8 October 2026 proposes that non-UCITS retail schemes with at least 50% of their property in inherently illiquid assets have no more than one dealing day a month for redemptions, with notice starting at least 90 days before. Existing funds would get two years to comply; the consultation closes on 11 December 2026 and final rules are expected in the first half of 2027 (FCA; FCA). Our report on the FCA’s 90-day notice proposal explains what it means for holders.
For ISA investors there is one more rule to know: units in a non-UCITS retail scheme qualify only if the scheme offers redemption at least fortnightly, while long-term asset funds (LTAFs) are named as qualifying investments (HMRC).
| REIT shares | Open-ended property fund | Buy-to-let | |
|---|---|---|---|
| How you sell | To another investor on the exchange, any trading day | Back to the fund on a dealing day; can be suspended | To a buyer, usually over months |
| Price | Set by the market; can be at a discount or premium to NAV | Based on the valuation of the property | Whatever a buyer pays |
| Stamp duty on buying | 0.5% on existing shares in UK companies | None on units bought from the fund manager | Stamp duty land tax, with a 5% surcharge on additional homes in England and Northern Ireland |
| Tenant and repairs | Handled by the company | Handled by the fund | Your responsibility |
Stamp duty figures from gov.uk; for buy-to-let costs see our UK property investment guide.
Questions to ask about any REIT
- What does it own, where, and how long are the leases?
- How much does it borrow, at what cost, and when does the debt need refinancing?
- What is the discount or premium to NAV, and how has it moved?
- Is the payout covered by rental profit, and how much of it is PID?
- What are the management costs, and is the manager external or internal?
The Financial Services Compensation Scheme can pay up to £85,000 per person per firm if a regulated firm holding your investments fails, but it does not cover a fall in a share price (FSCS).
