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Mr. Lewis: I will come to that in a moment. There are some restrictions. If the hon. Gentleman had been here a little longer he would have realised that a significant part of the debate that we have had has been about those restrictions on leverage.

To give some background, the Government began consulting on the possibility of introducing a UK REIT regime in 2004. Draft legislation was released in December 2005, and since then the Government have consulted extensively on the proposed regime with representatives of the property and investment industries. Of course there is always a fine balance between wanting to get such a measure on the statute book and get on with it, and ensuring that we get the regime right. If we spend time consulting properly and as a consequence design a more satisfactory regime, it is far more likely that it will be viable in the long term. Had we rushed the process, we might have ended up with an inappropriate regime, which would have undermined the whole concept of a UK REIT. Therefore, I defend the time that the process has taken. The consultation that has taken place during the past few months has been incredibly productive and constructive, and I suspect that that is why we have a significant degree of consensus, not only in the House but in the market, on the model that the Government propose to take forward.

The proposed regime will be available to companies if they meet certain conditions. A company must be resident in the UK, its shares must be listed on a recognised stock exchange and it must not be close. Those requirements are set out in clause 106. These companies will be exempt from corporation tax on property rental income, provided that they distribute 90 per cent. of such profits to investors, who will then be taxed at their marginal rates. That will achieve the fundamental aim of the regime—to mirror the tax treatment of direct property investment. To provide flexibility for companies to operate, the regime will be available to groups of companies, subject to certain conditions, including that the principal company in the group is UK resident, listed and distributes 90 per cent. of its property rental profits as just described.
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To ensure that UK REITs remain focused on their core property investment activity, at least 75 per cent. of the company's business, by both assets and profits, must consist of property rental business. The remaining 25 per cent. may be in any kind of activity, but will be subject to corporation tax in the usual way.

To avoid tax leakage, the regime sets limits on borrowing and the proportion of the company owned by any one shareholder. The nature and enforcement of these limits have been the subject of detailed discussions with the industry and others, which has produced a set of rules that can be enforced flexibly, with remedies proportionate to the level and nature of the breach. In practice, breaches of most of the conditions of the regime will simply result in a tax charge to compensate for lost revenue, with expulsion from the regime being reserved for certain key conditions or cases where clear abusive activity has taken place.

Companies will be able to participate in the regime from 1 January 2007, subject to meeting all the necessary conditions and paying an entry charge equal to 2 per cent. of the value of their property assets.

I should like to deal now, Sir Michael, with the Opposition amendments proposed by the hon. Member for Rayleigh—[Interruption.] I am sorry, Mrs. Heal, I nearly said something that I might regret. I shall deal first with amendment No. 4 and I shall attempt to respond to the issues raised mainly by the hon. Member for Braintree (Mr. Newmark). As to his concerns about the future of hon. Members' careers after praising the Government, that is a matter for others and not for me to speculate on.

Amendment No. 4 deals with the condition requiring listing on a recognised stock exchange. As has been said, that condition excludes shares traded on an alternative investment market and the amendment proposes that the Government extend the UK REIT regime to companies traded on AIM. I would like to respond to the points raised by hon. Members and explain why we believe, at this stage, that the amendment presents too many difficulties.

First, it is obviously a new regime and in the Government's opinion, the first companies in that regime should be listed only on exchanges that are regulated, which gives some assurances to investors, particularly small investors, that their investments come with full—and full is the important word—regulatory protection. Only regulated markets are admitted to the list of recognised stock exchanges maintained by Her Majesty's Revenue and Customs.

Secondly, the term "recognised stock exchange" is a fundamental concept used in our tax legislation. For example, only those shares listed on an RSE can qualify for inclusion in an ISA and the RSE definition is also important in areas such as stamp duty, venture capital trusts and the enterprise investment scheme.

Thirdly, and crucially—to deal with a point that hon. Members did not raise—it would not be possible to allow companies with shares listed on AIM to be eligible for the regime without also extending the same position to companies listed on similar markets in the European Union. The behavioural effects of such an extension are difficult to quantify in terms of the long-term cost to the Exchequer. Again, the risk for small investors would be greater than if the regime were restricted to companies listed on an RSE.
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To conclude my response to amendment No. 4, an extension of the regime to include companies traded on AIM would not meet the Government's objectives at this stage. On that basis, having explained the Government's position, I hope that the hon. Member for Rayleigh will consider withdrawing the amendment.

Amendment No. 23 also deals with a condition of the regime. Its effect would be to allow a UK REIT to be a close company. Being close is often used as a tax test to identify a company that is controlled by five or fewer people. Removing the restriction would allow companies controlled by a smaller number of investors to become a UK REIT. Hon. Members have made a case for us to consider doing so. As I have said, to achieve our policy aims for the regime, we would want the UK REIT to be capable of wide ownership by investors. That is not only to achieve a political objective, but for the sound reason of preventing tax avoidance. The closed company test is used throughout tax legislation for precisely that reason, and we believe that it has stood the test of time, which is why we have introduced it into the Bill.

The amendment would strike out that condition, the absence of which would allow any one person to control a UK REIT and divert many of the benefits of tax exemption conferred by the regime. In particular, a large group of companies could set up its own private UK REIT and obtain entirely unintended tax benefits in relation to the group's property holdings. That would be a clear subversion of the intention of the legislation, which is that the tax benefits of the regime should be available only when that kind of owner-occupied property is released into the investment market. The listing requirement, while undertaking a useful function in encouraging wider ownership, would not be sufficient on its own to prevent that kind of abuse. Companies may argue that they do not always know when they are closed, but the test is commonly understood and should not trouble a truly widely held vehicle. Indeed, that condition attracted little adverse comment in any of the public consultations in recent months.

The hon. Member for Rayleigh expressed the concern that a company may not know when it has reached that particular stage, but we believe that a company would know in most cases. An exclusion is available in the most common circumstances, which are when difficulties may be created by the involvement of a venture capital firm. One would expect companies to go to reasonable lengths to ensure that they do not breach that requirement and to use all the tools at their disposal in order to do so. For example, a UK-listed company can issue notices inquiring into the ownership of its shares.

The hon. Member for Rayleigh has also raised the question of pension funds, which I want to address directly in order to explain why there is not a problem. The extension in section 415 of the Income and Corporation Taxes Act 1988 allows 35 per cent. of shares to be held by "the public". The definition of "the public" includes a pension fund, which effectively removes that problem. I assure the hon. Gentleman that his concern is not valid, but I shall write to him with a more detailed explanation before Committee.

Amendment No. 24 seeks to require an annual report to Parliament on the number of market capitalisations of companies in the UK REIT regime. The FTSE real estate index currently includes 35 companies, which have
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a    combined market capitalisation of approximately £28 billion. At a recent industry conference, it was stated that most of those companies will choose to enter the UK REIT regime in January next year or at some point after that, depending on their particular circumstances. In addition, the expectation was that some currently unlisted companies would choose to list in order to join the regime and that some companies would be formed from scratch for the purpose of joining.

There would be very little value in having a specific Government report on an issue which will be widely known, which will be in the public domain and on which we will have the opportunity to report, perhaps in the pre-Budget report or the Budget. However, we cannot see why the Chancellor needs to produce a specific annual report. As I have said, however, we will keep the emerging market under review, and if developments occur that require us to adjust that regime to make it more effective and efficient and to ensure that we can pursue our objectives, then we will be open to reviewing it from time and time and making the appropriate changes.

Having accepted that there is significant consensus in the House today on the UK REIT regime and having tried to respond in depth to the genuine concerns expressed by the hon. Member for Rayleigh, I hope that he will withdraw the amendment.

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