How to Invest in REITs in the UK (2024) - Guide to REITs (2024)

The market capitalisation of Real Estate Investment Trusts (REITs) in the United Kingdom was £5.8 billion in June 2023¹.

With a significant number of options available for investors, it can be overwhelming to know where to start.

My guide will take you through the process, from the steps involved in investing in REITs, selecting suitable options and opening a brokerage account. I’ll teach you how to conduct due diligence, place buy orders and monitor your REIT investments effectively.

So, in a nutshell, want to know how to invest in REITs in the UK? To invest in Real Estate Investment Trusts (REITs) in the UK, you can start by opening a brokerage account with a platform that offers access to REITs listed on the London Stock Exchange or other international exchanges (I recommend eToro for beginners). Once your account is set up and funded, you can search for REITs by their ticker symbols and place a buy order.

Additionally, eToro offers REIT ETFs such as the VNQ-Vanguard Real Estate ETF as well as its RealEstateTrusts Smart Portfolio.

This article was reviewed byTobi Opeyemi Amure, an investing expert and writer atInvestopedia,Investing.com, and Trading.biz.

Here’s a quick step-by-step guide if you are short on time:

How to Invest in REITs in the UK (Step-By-Step Guide)

Investing in Real Estate Investment Trusts (REITs) in the UK is a straightforward process.

To invest in REITs, follow these steps:

1. Research and Select REITs: Identify suitable REITs by analysing their investment strategies, property portfolios, financial performance, and dividend history. Consider factors such as property type, geographic location, and management expertise.
2. Open a Brokerage Account: Choose a reputable brokerage firm that offers access to the UK stock market (I recommend eToro for beginners). Open an account, complete the necessary documentation, and fund your account.
3. Conduct Due Diligence: Before investing, thoroughly evaluate the selected REITs. Review their financial statements, annual reports, prospectuses, and any available market research. Assess the risks, growth potential, and overall stability of the REITs.
4. Place Buy Orders: Once you have selected the desired REITs, place buy orders through your brokerage account. Specify the number of shares you wish to purchase and the price at which you are willing to buy.
5. Monitor Your Investments: Keep track of your REIT investments regularly. Stay updated on any news or announcements related to the REITs and the real estate market. Monitor the performance of the REITs and evaluate whether they align with your investment objectives.
6. Consider Dividend Reinvestment: Some REITs offer dividend reinvestment plans (DRIPs) that allow you to reinvest dividends automatically to acquire additional shares. Evaluate the benefits of DRIPs based on your investment strategy.
7. Review and Adjust: Periodically review your REIT investments and make adjustments as needed. Consider rebalancing your portfolio based on changes in market conditions, investment goals, and risk tolerance.

Best Investment Platforms to Buy Real Estate Investment Trusts

Here are my top picks for investment platforms where you can buy REITs in the UK.

1. eToro – Best place to invest in REITs UK

Diversify your investment portfolio with popular REIT ETFs through eToro. Explore options such as iShares Global REIT ETF and iShares Core U.S. REIT ETF.

Get started with a minimum deposit of just $10. Diversify your investment portfolio and tap into the potential of REITs with eToro.

Along with ETFs, they also have a Real Estate Investment Trusts Smart Portfolio (long-term investment portfolios curated by eToro analysts).

2. Hargreaves Lansdown

Unlock a wide range of REITs for investment through your ISA or SIPP with Hargreaves Lansdown.

Explore their diverse selection and take advantage of the tax advantages offered by these investment accounts.

Expand your investment opportunities and access REITs with Hargreaves Lansdown.

3. interactive investor

Take advantage of Interactive Investor’s offerings by opening a SIPP or ISA account.

Access a wide range of REITs and enhance your investment portfolio. Explore the diverse selection available and make informed decisions with interactive investor.

What is a Real Estate Investment Trust?

A Real Estate Investment Trust (REIT) is a company that owns, operates, or finances income-generating real estate properties.

REITs allow individual investors to invest in real estate without directly owning or managing properties.

They pool investors’ capital to invest in a diversified portfolio of properties, which can include residential, commercial, or industrial real estate assets.

REITs are required to distribute a significant portion of their taxable income as dividends to shareholders, providing investors with a regular income stream.

They offer a convenient way to access real estate investments, providing liquidity and potential capital appreciation.

How Does a REIT Work?

A Real Estate Investment Trust (REIT) works by pooling investors’ capital to invest in a portfolio of income-generating real estate properties.

Here’s how it typically operates:

• Structure: A REIT is established as a company that owns, operates, or finances real estate assets. It must meet specific requirements set by tax authorities to qualify as a REIT.
• Property Acquisition: The REIT acquires properties, which can include residential, commercial, or industrial real estate assets. These properties generate rental income or other forms of revenue.
• Income Distribution: REITs are required to distribute a significant portion of their taxable income as dividends to shareholders. This distribution is often made in the form of regular cash dividends.
• Professional Management: The REIT employs professional managers who handle property management, leasing, maintenance, and other operational aspects of the real estate portfolio.
• Diversification: REITs aim to diversify their holdings by investing in a variety of properties across different locations and sectors. This diversification helps reduce risk and enhances the potential for stable returns.
• Publicly Traded or Non-Traded: REITs can be publicly traded on stock exchanges, allowing investors to buy and sell shares like any other publicly traded company. There are also non-traded REITs, which are not listed on exchanges and have different liquidity characteristics.
• Regulatory Requirements: REITs must comply with specific regulations, including distribution requirements, asset diversification rules, and restrictions on non-real estate activities.

By investing in a REIT, individual investors can access the benefits of real estate ownership, such as potential income, diversification, and the ability to participate in the real estate market, without the need to directly own and manage properties.

Here’s a good video that helps further explain REITs:

UK Specifics to REITs

In the UK, an important aspect of REITs is that dividend yields are considered rental income from properties.

Consequently, this exempts the company from paying Corporation Tax on the profits generated from property investments.

However, individual investors may still be liable to pay Income Tax and/or Capital Gains Tax (CGT) on their profits, depending on their income level and investment structure.

One notable drawback of UK REITs is the 0.5% stamp duty applied to all share purchases in the UK.

On the other hand, a significant advantage of UK REITs is that property income profits are not subject to the standard corporate tax rate of 25%.

Instead, these profits are distributed, with 90% being counted as property income distribution (PID), taxed based on the individual’s tax bracket.

It’s worth noting that some individuals may be able to offset their ordinary 20% withholding tax on REIT dividends, but attention should be paid to whether the REIT distributes ordinary dividends or PID, as they may distribute a combination of both.

Types of REITs

There are several types of REITs based on the nature of their underlying properties:

Equity REITs: These REITs primarily own and operate income-generating properties, such as residential buildings, office spaces, retail centers, and industrial properties. They generate rental income from leasing these properties.

Mortgage REITs: Also known as mREITs, these REITs invest in mortgages or mortgage-backed securities. They earn income from the interest on the mortgages they hold or the mortgage-backed securities they own.

Hybrid REITs: These REITs combine the characteristics of both equity and mortgage REITs. They own and operate properties while also investing in mortgages or mortgage-backed securities.

Publicly traded REITs: These REITs are listed on stock exchanges and can be bought and sold by individual investors like stocks.

Non-traded REITs: These REITs are not traded on stock exchanges. Instead, they are sold through broker-dealers or private placements. Non-traded REITs typically have limited liquidity compared to publicly traded REITs.

Specialty REITs: These REITs focus on specific property types, such as healthcare facilities, data centers, hotels, self-storage units, or timberlands. They specialise in a particular sector of the real estate market.

REIT ETFs

REIT ETFs (Real Estate Investment Trust Exchange-Traded Funds) are investment funds that aim to provide exposure to a diversified portfolio of REITs.

These ETFs invest in a basket of REITs, allowing investors to gain exposure to the real estate sector without directly owning individual REIT stocks.

REIT ETFs typically track an index or a specific REIT market segment. They offer investors the opportunity to invest in a diversified portfolio of real estate assets across different property types, regions, or countries.

By holding shares in a REIT ETF, investors can benefit from the potential income and capital appreciation generated by the underlying REIT holdings.

Investing in REIT ETFs offers several advantages, including diversification, liquidity, and cost efficiency. Investors can gain exposure to a broad range of REITs with a single investment, reducing individual stock risks.

Additionally, REIT ETFs are traded on stock exchanges, providing liquidity and flexibility for investors to buy or sell shares throughout the trading day.

Lastly, REIT ETFs often have lower expense ratios compared to actively managed mutual funds, making them a cost-effective option for accessing the real estate market.

Investing in REITs through an ISA

Investing in REITs through an Individual Savings Account (ISA) provides a tax-efficient way to participate in the real estate market.

An ISA is a type of account that allows individuals to save or invest money without paying tax on the returns generated within the account.

By utilising an ISA to invest in REITs, investors can potentially benefit from tax advantages such as:

1. Tax-free dividends: Dividends earned from REIT investments held within an ISA are not subject to income tax. This means that any income generated from the REITs can be received in full, without being reduced by income tax deductions.
2. Tax-free capital gains: Any capital gains made from selling REIT investments held within an ISA are also exempt from capital gains tax. This can be advantageous if the value of the REITs increases over time, as the investor can enjoy the full gains without incurring tax liabilities.
3. Flexibility and convenience: Investing in REITs through an ISA offers the flexibility to choose from a range of REIT options and manage the investments within a tax-efficient wrapper. It also provides the convenience of consolidating investments and potential tax benefits within a single account.

However, it’s essential to remember that there are annual contribution limits for ISAs.

As of the 2023/2023 tax year, the overall annual ISA allowance is £20,000, which includes all types of ISA investments, including cash and stocks & shares.

It’s important to consider these limits and any specific terms and conditions associated with the ISA provider before investing in REITs through an ISA.

Disadvantages of UK REITs

Some disadvantages include:

1. Stamp Duty: UK REITs are subject to a 0.5% stamp duty on all UK share purchases. This additional cost can impact the overall return on investment and increase transaction costs.
2. Tax Considerations: While REITs themselves enjoy favorable tax treatment, individual investors may still be subject to taxes on their investment returns. Depending on the investor’s income level and how the investments are held, they may be liable for Income Tax and/or Capital Gains Tax (CGT) on their profits.
3. Market Volatility: Like any other investment, UK REITs are exposed to market volatility. Factors such as economic conditions, real estate market trends, and investor sentiment can impact the performance of REITs. Share prices may fluctuate, potentially leading to capital losses.
4. Interest Rate Sensitivity: REITs can be sensitive to changes in interest rates. Rising interest rates can increase borrowing costs for REITs and affect their profitability. This can have an adverse impact on share prices.
5. Sector-Specific Risks: Different sectors within the real estate market may carry specific risks. Factors such as economic conditions, supply and demand dynamics, and regulatory changes can affect the performance of specific types of properties. Investors should consider the risks associated with the specific sectors in which the REIT operates.
6. Lack of Control: As a passive investor in a REIT, individuals have limited control over the management and decision-making processes of the underlying real estate assets. The investment decisions are made by the REIT’s management team, which may not align with the individual investor’s preferences or objectives.

Final Thoughts

To wrap things up, investing in UK REITs can be an attractive option for individuals looking to gain exposure to the real estate market.

By investing in REITs, investors can access a diversified portfolio of income-generating properties without the need for direct ownership.

This investment avenue offers the potential for regular dividends and the opportunity to benefit from long-term capital appreciation.

However, it’s important to consider the potential risks and disadvantages associated with investing in REITs.

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1. https://www.statista.com/statistics/1369569/market-cap-reits-uk/ ↩︎