It is a pleasure to return this debate to the amendments to clause 38 and schedule 18 of the Finance Bill before us. Before I discuss Opposition amendment 57, I shall say a few words about amendments 30 to 34, which are designed to ensure that clause 38 and schedule 18 work as intended. The clause and the schedule make improvements to the REITs regime. This year’s Finance Bill improves the REITs regime by allowing a UK REIT to treat income from another UK REIT as income of its tax-exempt property rental business. Therefore these amendments do not affect the policy, but rather ensure that it works as intended. The change would generate positive benefits for the REIT industry, and also meets the Government’s wider objectives.
Let me provide some background. During the technical consultation in February, stakeholders told us that the changes as drafted might not work quite as intended. HMRC has consulted further with interested parties, and we agree that minor changes are necessary to achieve the desired policy aims. The problem, as presented by interested parties, concerned the balance of business test, which requires that at least 75% of the REIT’s profits must come from a property business. Interested parties were concerned that in certain circumstances, a REIT that invests in another REIT might fail that test even though the lower-tier REIT derives all of its income from a property business. Consideration of the issue has revealed that minor amendments are required both to the new and the pre-existing legislation. These amendments together will ensure that the Bill’s changes correctly implement the intended policy, which is that profits of a property rental business comprising the new type of tax-exempt income do not include amounts attributable to capital allowances and other tax adjustments.
Turning to Opposition amendment 57, we have had a very broad debate this afternoon. Indeed, it has felt more like an Opposition day debate on housing than a debate on the clause and the schedule. The amendment proposes that the schedule shall come into force after the Chancellor has conducted a review of the interaction of REITs with the housing market, and I hope to address the issue of REITS and the housing market in my remarks.