NOW that we are recovering from another Yuletide, many of us are inevitably focusing on the impending tax deadline of January 31.

Aside from writing out cheques to Gordon Brown, we at JWP Creers also find that our clients are beginning to think about their investment strategies.

As we all know, investing in property has been the done thing for some time now.

While significant growth in portfolio values has been possible, it has not been without a tax cost for many investors, particularly some smaller investors who are frustrated at the restrictions in the type and size of property available to them.

However, the Government has for some time believed that property market is operating inefficiently, especially when compared to some overseas markets, and has now decided to do something about it.

There has been a lack of choice for smaller investors - something which we had all hoped would change with the much-publicised, but in the end cancelled, changes to pension schemes and residential properties.

It was also considered that there was poor liquidity in the property market, high levels of debt financing, tax distortions and, in general, vast scope for more efficient use of commercial property.

A new regime came into existence on January 1 that offers significant tax reliefs for property investors. Now, investors in UK Real Estate Investment Trusts, or REITs, will be able to benefit from tax free company profits and gains from property.

To take advantage of these generous reliefs, the REIT must be a quoted company; no investor must hold ten per cent or more of the shares; the company must distribute at least 90 per cent of its tax-exempt income to its shareholders within 12 months after the company's year end; the company must have at least 75 per cent of its assets in the form of investment properties; and 75 per cent of its income must be rental income.

The 90 per cent test means that the company does not pay corporation tax on its profits or gains, generating an expected 30 per cent more income to distribute by way of taxable dividends and giving an immediate boost to the shareholders' rate of return on such investments.

It is understood that many of the country's largest property investment plcs are considering converting themselves into REITs as soon as is practicable. A significant competitive advantage is potentially on offer to those who are successful.

There are undoubtedly sufficient property-based investors in our region who may want to consider not only the tax benefits available from a REIT but also the opportunity of forming themselves into a local or regional REIT.

The ten per cent rule would mean that at least ten likeminded investors would need to come together to pool their interests. There is nothing, apart from initial flotation costs and some form of collective organisation, to stop this process from taking place. We would like to hear from anyone who would want to discuss these opportunities further.

The views expressed here are based on the tax advantages only and it must stressed that anyone considering investing in a UK REIT should seek investment advice from suitably qualified professionals.

  • Mike is Corporate Tax Partner at JWP Creers, York