I move amendment No. 18:
In page 96, between lines 3 and 4, to insert the following:
"Report on the application of capital gains tax to all sales of property by REITs and IREFs
40. The Minister shall, within six months of the passing of this Act, prepare and lay before Dáil Éireann a report on the application of the full rate of capital gains tax of 33 per cent to all disposals of property of the rental business of a REIT, IREF, or group of REIT or IREF.".
I support the Ceann Comhairle's earlier comments. I, too, believe there should not be a guillotine on this Bill. That said, we will try to make as much progress as possible.
Amendments Nos. 18 and 35, which we discussed on Committee Stage, deal with the tax treatment of real estate investment trusts, REITs, and Irish real estate funds, IREFs, and the broader economic impact of these institutional investments on the housing market. I will begin with their tax treatment in the application of capital gains tax, or, more to the point, how that tax does not apply to them. Investment funds in the housing market pay no capital gains tax on their disposal of assets. It is normal practice when property is sold for a profit that this tax is applied at 33%, payable to the Revenue Commissioners within a few months of the property's disposal. This applies to individuals and companies selling properties. It also applies to large developers such as Glenveagh and Cairn Homes, but REITs and IREFs are exempt from it. This exemption is a massive and unjustified benefit for funds, which can keep accumulating money within the fund tax free. That is what is happening, with none of the gains subject to dividend withholding tax unless the money leaves the fund.
I will provide two examples. Last year, Kennedy Wilson sold one of its key Irish properties, Baggot Plaza in Dublin, to a German property investor for €141 million, making a profit of $85 million. All of that gain was exempt from capital gains tax. Kennedy Wilson made clear that the proceeds of the sale, all of them exempt from capital gains tax, would be recycled into new opportunities, a tax advantage not available to any struggling homebuyer, landlord or any other company. Similarly, Irish Residential Properties REIT, IRES, last year sold a 151-apartment portfolio to Orange Capital Partners for €48 million, a sale that, again, was exempt from capital gains tax. If we are to rebalance our housing system, which is completely out of control and failing to deliver affordable homes for purchase or cost rental, then we need to examine and remove these generous tax advantages that have been gifted to funds by the Minister. That will include getting rid of the capital gains tax exemption. These funds pay no corporation tax on their rental profits and no capital gains tax on the disposal of their assets. These are tax advantages that domestic landlords and other companies in this State do not enjoy.
There are Members in this House, many of them in the Minister's party, who are landlords. That is fine and they pay tax on their rental income. Landlords right across the State pay tax on their income from rent, as is right and proper. Many of them complain the tax rate is too high and we heard a contribution yesterday relating to that argument. They all pay tax on their rental income, however, while these funds pay none. One of the funds is the largest landlord in the State. They are recycling their profits to build up more assets and when those assets are disposed of in the future, no capital gains tax will apply.
In May of this year an article in The Irish Times reported that institutional property investors, IREFs, paid an effective tax rate of 17.9% in 2020 based on taxable events in 2019. That taxable event is important. A taxable event is only what is deemed to be taxed. Collecting your rent is not a taxable event, if it is exempt from tax in the tax code, nor is disposing of an asset. The Minister also relayed the figure of 17.9% in a parliamentary reply in June. The figure was again regurgitated on the radio by the Minister of State, Deputy Fleming, who claimed that on any profits being made there is a tax of 20% or 25% depending on the structure and any profits that they make are taxed at that higher rate, double the rate of corporation tax.
That statement just is not true. Those are the facts of it. The figure of 17.9% was relative to the taxable event, meaning distributions to shareholders. It was not relative to rental properties or rental profits. This is because the tax code we are discussing this evening deems that rental profits for these fund structures are not to be taxed. The Minister of State was, therefore, ill-informed, inaccurate, misleading or whatever you want to say.
In 2019, tax paid by IREFs relative to pre-tax profits was 9.1%, less than the 25% paid by any other landlord in the State and less than the 12.5% paid by any other company. That is the point. If you are a landlord, you pay that. If you are a company you pay the 12.5%, but these funds are paying 9.1% relative to their pre-tax profits. I am sure the Minister is going to use his numbers to suggest it is 17.9% in taxable events, but that is all nonsense if you say all of this over here is not a taxable event even though it is a taxable event for all the other landlords and the other companies which are not IREFs and REITs. Furthermore, as I said, they are exempt from capital gains tax entirely.
We disagree with the Minister on this policy issue. I am sure he will tell us that Sinn Féin’s policies would be terrible for everybody, that he is doing this for the young ones who want to try and get on the property market and all the rest, and that is why they have to allow all these structures to go tax free on the €2,000 euro rents they are charging in this city. We believe that the tax advantages enjoyed by these funds is pricing struggling home buyers out of the market and driving up rents. They have a competitive advantage. We also know these funds, in the vast majority of cases, are buying up properties subject to forward purchase agreements and not forward funding agreements, despite the commentary. There has been commentary from the Minister’s Department about its report on institutional investment, which has warned about the potential to develop pricing power within the market. I argue that this amendment should be supported. It is calling for a report on how we deal with this over the period ahead.