CLS Holdings plc (LSE:CLI) has announced that it expects to leave the UK Real Estate Investment Trust (REIT) regime on 31 December 2026 following changes to its share ownership structure.
The property investment company said recent changes in its shareholder base mean it no longer satisfies a legislative requirement for REIT status relating to the classification of a company as a close company.
CLS confirmed that the ownership changes were outside its control and that the anticipated departure from the REIT regime will affect the tax treatment of the company and its UK subsidiaries.
The group said its existing property investment and management strategy will remain unchanged.
Share Ownership Changes Affect REIT Eligibility
CLS Holdings explained that companies operating under the UK REIT regime must satisfy several legislative conditions to maintain their tax status.
One requirement is that a REIT must not qualify as a close company under the relevant legislation.
Following recent changes in its share ownership, CLS said it no longer meets this condition and consequently expects to exit the regime at the end of December 2026.
The company did not provide further details about the ownership changes or identify the shareholders involved.
The expected departure relates specifically to the group’s eligibility for REIT tax treatment rather than changes to its property portfolio or operational activities.
CLS has not announced any modifications to its investment objectives or property management arrangements as a result of the development.
UK Corporation Tax Exemptions to End from January 2027
Following the anticipated exit, CLS Holdings and its UK subsidiaries will no longer benefit from the corporation tax exemptions available under the REIT regime.
From 1 January 2027, the group’s UK rental profits and profits arising from property sales will become subject to the standard UK corporation tax rate.
Under its existing REIT status, qualifying property rental income and gains from property disposals are generally exempt from UK corporation tax, provided the applicable legislative conditions are satisfied.
The change will therefore alter the tax treatment of the group’s UK property activities from the beginning of 2027.
CLS did not quantify the expected financial impact of losing REIT status or provide estimates of additional corporation tax liabilities.
The actual effect on future earnings and cash flows will depend on the group’s taxable profits and property transactions after the change takes effect.
Future Dividends to Be Paid as Ordinary Distributions
CLS Holdings also outlined changes to the treatment of shareholder dividends following its expected departure from the REIT regime.
The company said future distributions will generally be classified as ordinary dividends rather than Property Income Distributions (PIDs).
An exception is expected for the final dividend relating to the 2026 financial year.
CLS anticipates that this distribution will be paid wholly or partly as a PID to satisfy the requirements applicable before its departure from the REIT regime.
The company did not announce any changes to dividend amounts, payment dates or its wider distribution policy.
The distinction between ordinary dividends and PIDs is relevant to the tax treatment of distributions received by shareholders.
Property Investment and Management Strategy Remains Unchanged
CLS Holdings emphasised that its expected REIT exit concerns the tax status of the company and its UK subsidiaries.
The group confirmed that its property investment and management strategy will not be affected by the change.
The announcement did not identify any planned property disposals, acquisitions or operational restructuring associated with the anticipated loss of REIT status.
CLS expects the change to become effective on 31 December 2026, with the revised corporation tax treatment applying from 1 January 2027.
The company has not provided financial guidance reflecting the expected change in tax status.
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