Associations would manage properties bought by corporation tax-exempt bodies
The property industry has started a campaign to persuade the Treasury to promote private investment in key worker housing by offering tax breaks.

Chancellor Gordon Brown said in April's Budget that the Treasury would look at tax breaks for commercial and residential property investment. Now, he is understood to have had meetings with the Royal Institution of Chartered Surveyors and landlords' body the British Property Federation on the issue.

They propose that the UK adopt a system used in the USA, real estate investment trusts, which could provide homes for people who cannot afford to buy and do not qualify for social housing. Under the US model, private investors including pension funds, charities and financial institutions put money into a trust that buys property for private rent.

Housing associations could manage the properties bought by the trusts.

The Treasury has commissioned a series of studies to examine bottlenecks in the housing market and is understood to be seriously interested in the proposals.

Liz Peace, chief executive of the British Property Federation, said: "The Treasury and Brown have intimated that they would be prepared to talk about the possibility.

"Others in the Office of the Deputy Prime Minister and the Treasury are interested in [the system] as they see it as a way of expanding the number of homes available and tackling their departmental targets."

She said she thought it would be at least six months before the Treasury consulted the industry on the scheme.

The exemption from corporation tax maximises the returns the trust can pay, and 95% of its profits go to shareholders.

Shareholders pay income tax according to their normal tax band. If the system were adopted in the UK, a higher-rate private taxpayer would pay 40% tax on their return.

RICS director of policy Michael Chambers said that although rents would not be subsidised, trusts could offer affordable rents by buying cheaper property.

The RICS is publishing two pieces of research before it approaches the Treasury again. One will look at the difference between trust schemes around the world and the other will cover the problems that pension funds and charities have in investing in property.

Steve Walker, chief executive of London & Quadrant Housing Trust's homeownership arm Tower Homes, welcomed the idea that housing associations would manage the properties bought by the trusts, but added that he feared investors might try to squeeze management costs.

Source

Housing Today