"The UK REIT model published today allows the market to grow successfully while offering the necessary protection for the UK Exchequer," Treasury minister Ivan Lewis said yesterday. "It reflects the Government's objectives of providing flexibility while ensuring fairness for taxpayers."

But investors will have to wait until the March 2006 budget to find out how much tax the government plans to charge companies to become a REIT. Treasury sources have said privately that the aim was for it to be revenue neutral for the Treasury.

Property firms currently pay the UK's 30% corporation tax on their profits. Much like their US counterparts, converting companies under the new proposals would pay no corporation tax on their qualifying property rental profits. They would however be required to distribute 95% of such profits to investors, who would then pay tax at their marginal rates.

Lewis said the UK regime would allow some flexibility for companies to pursue activities other than investment in property, such as development or services to tenants. But the majority of income should come from rental.

Property companies enjoyed the stock boost the REIT news provided. Land Securities rose 3.2%, British Land climbed 2.2% and Hammerson rose 1.9% in the wake of the announcement. "This draft is positive for UK real estate stocks, and we are upgrading our price targets by an average of 10% and reiterating our overweight stance on UK property," a JP Morgan analyst reports. "We calculate the highest upside potential for Land Securities and British Land."