Reit move to cost British Land £300m

The company will place more than £14bn worth of property into a real-estate investment trust or Reit, a new company structure given the go-ahead in this year's Budget.

British Land, as the second-largest UK listed property group, is easily the biggest company to declare its intention to go for the new structure. Acquiring Reit status means that companies no longer have to pay capital gains tax on the sale of assets or corporation tax - but they must pay out 90 per cent of profits as dividends, which will be taxed.

Stephen Hester, British Land's chief executive, said that Reits should be attractive to almost every UK-listed property business. According to Mr Hester, that will provide a major boost to regeneration and development activity by property companies.

Although the property industry was not happy with the draft Reit plan published by the Government late last year, following heavy lobbying by it, the final version of the Reit regime announced by the Chancellor in March was much more attractive. In particular, it increased the level of debt allowed to a Reit and it lowered the entry charge that is levied for being allowed to convert to a Reit.

Mr Hester said: "Over the last five years, a flood of money has gone into UK property from offshore investors [who do not pay tax]. Reits will level the playing field and allow us to compete more successfully with people that have different tax arrangements."

British Land will pay £287m to convert to Reit status. But that will mean that it is no longer liable to pay some 20 per cent of profits as corporation tax or the £1.3bn in capital gains tax that would be payable if it sold its property portfolio.

The company said that, as a Reit, the dividend payout would go up at least 45 per cent. Its shares gained over 6 per cent at 1,238p.

British Land also reported full-year results, for the 12 months to the end of March. For the period, it saw net asset value per share soar 32 per cent to 1,486p, while underlying pre-tax profit grew 26 per cent to £228m.

Mr Hester warned, though: "The property market is more vulnerable than in recent years to setbacks should interest rates go higher."