Direct buy-to-let requires significant capital, ongoing management, and carries increasing tax disadvantages. REITs and property funds offer property exposure with less capital and without landlord responsibilities.
What are REITs?
A Real Estate Investment Trust owns and manages income-producing real estate. By law, REITs must distribute at least 90% of taxable rental income as dividends. UK-listed REITs include SEGRO, Land Securities, British Land, and Primary Health Properties. They are listed on the stock exchange and can be bought through a broker or Stocks and Shares ISA.
Property funds
Open-ended property funds can suspend redemptions when too many investors want to exit simultaneously — a significant drawback demonstrated during past market turbulence. Global REIT ETFs offer diversified exposure while maintaining liquidity.
Tax considerations
REITs within a Stocks and Shares ISA are free of capital gains tax and income tax. This makes the ISA wrapper particularly valuable for REIT holdings.
Bottom line
REITs and property ETFs are a legitimate way to gain property exposure without the capital, management, and tax disadvantages of direct buy-to-let. They deserve serious consideration for investors seeking income and diversification.