The appeal of property investment is easy to understand. Tangible, understandable assets. Inflation-linked rental income. Historically reliable capital appreciation over long periods. The ability to use leverage. A sense of control that equities do not provide.
The reality of direct property ownership, particularly for internationally mobile investors, is frequently less appealing. Stamp Duty Land Tax (SDLT) at 3–5% eats into returns before the investment is even made. A second property attracts a 5% SDLT surcharge (since 31 October 2024). Section 24 of the Finance Act 2015 denies mortgage interest as a tax deduction for individual landlords, replacing it with a 20% credit — which means higher-rate taxpayers can now make losses on a property even when the rental income exceeds all cash costs. Management is time-consuming and unavoidable: tenants, maintenance, voids, agents. Capital gains tax on disposal can be 24% for higher-rate taxpayers.
For an investor seeking exposure to the returns of real estate without these frictions, the listed and fund-based alternatives are worth understanding in detail.
Real Estate Investment Trusts (REITs)
A REIT is a company that owns and manages income-producing real estate. UK REITs were introduced in 2007. To qualify as a REIT, a company must:
- Be a closed-end company listed on a recognised stock exchange
- Have at least 75% of its profits and assets from property rental
- Distribute at least 90% of its tax-exempt property rental profits to shareholders each year
In exchange for meeting these requirements, a UK REIT pays no UK corporation tax on rental income or property gains. The tax is instead paid by shareholders, receiving Property Income Distributions (PIDs) that are treated as if they arose from the underlying property rental — subject to income tax at the shareholder's marginal rate if held outside an ISA or SIPP.
Key UK-listed REITs:
- Segro plc (FTSE 100): Specialises in urban warehousing and logistics real estate — the type of property that e-commerce has made increasingly valuable. Pan-European portfolio.
- Land Securities Group (Landsec): One of the UK's largest commercial property companies, holding prime Central London offices and retail.
- British Land: Similar to Landsec; offices, retail parks, and mixed-use developments.
- Tritax Big Box REIT: Focused exclusively on large-format logistics warehouses ("big box") — Amazon, DHL, Ocado-type tenants. High-income, long-lease portfolio.
- UNITE Group: Student accommodation REIT. Structural demand driver as UK higher education enrolments remain robust.
- Assura and Primary Health Properties: Healthcare-focused REITs owning GP surgeries and primary care facilities, typically with NHS-backed long leases.
- LXi REIT: Sale-and-leaseback of diverse sectors with long, inflation-linked leases.
Advantages of UK REITs:
- Listed on the London Stock Exchange — fully liquid, trading during market hours
- Can be held inside an ISA or SIPP (where PIDs are sheltered from income tax)
- Diversified across many properties and tenants — single property risk eliminated
- Professionally managed — no direct management responsibility
- Typically £0 to buy (no SDLT, no conveyancing, no survey costs)
Disadvantages:
- Subject to stock market volatility — listed property share prices are more volatile than the underlying property values
- Dependent on management quality and capital allocation decisions of the REIT management team
- PIDs taxed as income, not as capital gains — no annual CGT exemption available
- No leverage in your own hands — you own shares, not the underlying mortgaged property
Infrastructure Investment Trusts
While not strictly property, infrastructure investment trusts provide exposure to real assets with similar characteristics to commercial property: long-duration, inflation-linked income streams from high-quality counterparties.
HICL Infrastructure and International Public Partnerships (INPP) hold portfolios of PFI/PPP projects (hospitals, schools, government buildings, motorways) under long contracts with government counterparties. The income is contractual and inflation-linked. These are used by pension funds and insurance companies as bond alternatives.
For private investors, infrastructure investment trusts — held in a SIPP or ISA — offer a useful diversifier from equities and conventional bonds.
Property Funds: The Liquidity Risk Problem
Open-ended property funds (OEICs or unit trusts investing directly in physical property) have been a popular retail investment for decades. They hold real buildings, collect rent, and distribute income to unitholders.
The fundamental problem with open-ended property funds became evident in 2016 (post-Brexit vote) and again in 2020 (COVID): when investors want their money back simultaneously, open-ended funds investing in illiquid physical properties face an impossible mismatch. They cannot sell properties fast enough to meet redemptions. The result is fund suspension — investors cannot access their money for months.
The FCA has moved to address this through the Long-Term Asset Fund (LTAF) structure, which requires longer redemption notice periods to match the fund's underlying liquidity. Whether this fully resolves the structural mismatch is debated.
Verdict on property funds: For investors who need access to their money at any time, open-ended property funds present genuine liquidity risk. Closed-ended structures (REITs, investment trusts) do not have this problem — you can sell your shares at any time on the stock exchange, even if at a price below NAV.
Property Loan Notes: A Higher-Risk Option
Property loan notes are fixed-return debt instruments issued by property developers to raise development finance. The typical structure: a developer raises £5 million from private investors via 6–9% fixed annual interest notes, secured on a development property, repayable after 24–36 months when the development is sold.
What they offer: Fixed returns (typically 6–10% per annum) that are not correlated with stock market movements. Secured on property. Accessible for smaller investment amounts (often from £10,000–£25,000).
What they involve: Credit risk of the developer — if the development fails or the developer is insolvent, you are a secured creditor but recovering your investment may require enforcement of the security, which takes time and money. The security quality varies enormously: a first charge on a fully consented, near-complete development site is meaningfully different from a second charge on an early-stage site.
The regulatory question: Many property loan notes are issued outside the FCA's regulated investment perimeter — they are not regulated collective investment schemes and are not subject to FCA product rules. This means: no FSCS protection, limited recourse if things go wrong, and a promoter who is not required to meet the same standards as an FCA-authorised fund manager.
Property loan notes are not inherently fraudulent — many are legitimate and repay as promised. But the sector has produced high-profile failures, and the lack of regulation means due diligence falls entirely on the investor.
Verdict: Property loan notes are a specialist, higher-risk instrument. They may be appropriate for a small proportion of a portfolio for sophisticated investors who have assessed the specific security and the developer's track record. They are not a straightforward alternative to direct property ownership.
REIT vs Direct Property: A Side-by-Side Comparison
| Factor | Direct Property | REIT |
|---|---|---|
| Acquisition cost | SDLT (tiered rates + 5% additional-dwelling surcharge), legal fees, survey | Broker commission only (near zero) |
| Management | Your responsibility | Managed by REIT |
| Liquidity | Months to sell | Sell same day on stock exchange |
| Leverage | Can borrow against property | REIT uses corporate-level debt |
| Diversification | Single property/market | Portfolio of properties |
| Tax (rental income) | Income tax minus allowable costs (not mortgage interest if Section 24 applies) | PIDs taxed as rental income; tax-free in ISA/SIPP |
| Tax (gains) | CGT at 18–24%, 60-day reporting | CGT at standard rates; CGT-free in ISA/SIPP |
| IHT | In estate (unless BPR applies) | In estate (unless ISA, with IHT treated as normal asset) |
| Returns | Higher variance; leverage-enhanced possible | Lower variance; market-correlated |
The ISA and SIPP Angle
For internationally mobile investors, the most compelling argument for REITs over direct property is the wrapper advantage. REITs held inside a Stocks and Shares ISA are free of income tax on PIDs and free of CGT on disposal — permanently. Held inside a SIPP, they grow free of tax with full pension tax relief on contributions.
Direct property cannot be held inside an ISA or SIPP (with the narrow exception of commercial property inside a SIPP, which is possible but administratively complex). The tax wrapper advantage for REITs is permanent and material.
Compliance Caveat
Property investment is subject to complex and changing tax rules. Section 24 mortgage interest restrictions, SDLT surcharges, CGT reporting requirements for residential property disposals, and REIT distribution tax treatment can all change. The information in this article reflects the general position as understood in mid-2026. Past returns of UK property, REITs, or property funds do not guarantee future performance. Property values, rental incomes, and REIT share prices can all fall as well as rise, and you may receive less than you invest. Seek professional advice before making any property investment decisions.
How Global Investments Can Help
For internationally mobile investors who want property exposure within a tax-efficient, manageable portfolio structure, REITs and property investment trusts can be an elegant solution. Global Investments builds and manages diversified investment portfolios that incorporate property exposure alongside other asset classes, helping clients achieve their target allocation without the management and tax complexities of direct ownership.
We also advise on whether direct property investment makes sense in specific circumstances — the analysis is different for commercial property inside a SIPP, overseas property in markets where UK Section 24 does not apply, or investment portfolios where leverage is a deliberate strategy. Contact our team to discuss how property fits into your wider investment plan.
This article is for general information only and does not constitute financial, legal or tax advice. Rules, prices and regulations change; verify current requirements with a qualified adviser before acting.