Dáil Éireann Debate, Tuesday - 16 June 2020
111. Deputy Ged Nash asked the Minister for Finance the estimated revenue that would be raised from an increase in capital gains tax at each percentage point from 33% to 40%, respectively; the estimated additional revenue that would be raised at each of these rates by ending the three-year capital gains tax exemption for real estate investment trusts, in tabular form; and if he will make a statement on the matter. [11404/20]
View answerI am advised by Revenue that the estimated yield from increasing the rate of Capital Gains Tax (CGT) is published on page 13 of the Revenue Ready Reckoner, available at link; https://www.revenue.ie/en/corporate/information-about-revenue/statistics/ready-reckoner/index.aspx. While the exact changes sought by the Deputy are not provided, they can be estimated on a straight-line or pro-rata basis. It should be noted that these estimates are based upon an assumption that there would be no behavioural impact arising from these changes.
In relation to REITs, Finance Act 2013 introduced the regime for the operation of Real Estate Investment Trusts (REITs) in Ireland. The function of the REIT framework is not to provide an overall tax exemption, but rather to facilitate collective investment in rental property by removing a double layer of taxation which would otherwise apply to property investment via a corporate vehicle.
While property rental income and gains are exempt from tax within the REIT, they are taxed instead at the investor level when distributed. Dividend Withholding Tax (DWT) must be applied to all distributions from REITs, other than those distributed to certain limited classes of investors such as pensions and charities as they are more generally exempt from tax. The distributions are subject to a DWT at 25%.
There is no 3 year exemption from Capital Gains Tax within REITs - rather, there is a general exemption subject to specific requirements including distribution obligations and anti-avoidance provisions. The Deputy may be referring to an anti-avoidance provision designed to prevent REITs being used as short-term development vehicles rather than for long-term rental property. It provides that a REIT is subject to CGT on the disposal of a property asset if:
- it acquires an asset that is used for the purposes of its property rental business, and
- following that acquisition the asset is developed to the extent that the development cost exceeds 30 per cent of the market value of the asset at the time the development commenced, and
- the asset is then disposed of within 3 years of completion of the development.
It should also be noted that REITs are subject to CGT in respect of the disposal of any assets which are not held for the purposes of the property rental business.
It is not possible to provide the information sought by the Deputy as the future value and volume of REIT disposals are unknown. Further, Revenue has confirmed that due to the small number of REITs involved, and its obligation to maintain the confidentiality of taxpayer information, specific quantitative information in relation to these entities cannot be provided.
