Dáil Éireann Debate, Wednesday - 24 February 2021
183. Deputy Francis Noel Duffy asked the Minister for Finance if his attention has been drawn to the purchase of properties by a foreign investment firm (details supplied); the tax rate investors will pay on rental income; the impact of block purchases by foreign investment firms on housing affordability; and if he will make a statement on the matter. [9740/21]
View answerI would like to advise the Deputy that, as the Minister for Finance, I am not in a position to comment on the activities of specific taxpayers. I can however provide the following overview of the tax regime applicable to different types of collective investment in Irish property.
The normal tax treatment afforded to collective investment funds is that the monies invested are allowed to grow on a tax-free basis within the fund. The income is taxed at the level of the investor rather than the fund, as is standard international practice.
Investors in funds are generally subject to tax in their jurisdiction of residence. However investment in Irish property is an exception to this general tax treatment. Finance Act 2016 introduced the Irish Real Estate Fund (IREF) regime to address concerns regarding the use of collective investment vehicles by non-residents to minimise exposure to Irish tax on Irish property transactions.
An IREF is an investment undertaking where 25% or more of the value of that undertaking is made up of Irish real estate assets. Generally IREFs must deduct a 20% withholding tax on distributions to non-resident investors. Certain categories of investors such as pension funds, life assurance companies and other collective investment undertakings are generally exempt from the withholding tax provided the appropriate declarations are in place. Non-resident investors from treaty resident countries may be able to reclaim some part of IREF withholding tax if the relevant tax treaty allows for this. Irish resident investors may be subject to the investment undertakings exit tax, at a rate of 41%.
Investors can also invest in Irish property through a Real Estate Investment Trust (REIT). A REIT is a quoted company, used as a collective investment vehicle to hold rental property. 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 on property investment via a corporate vehicle. REITs are publicly listed companies - therefore distributions are dividends within the scope of Dividend Withholding Tax, which applies at a rate of 25%. REITs are obliged to distribute at least 85% of profits annually.
In the context of the wider residential housing market, institutional investors occupy a relatively small share of the market. Data provided by the Residential Tenancies Board in November 2020 reports that the majority (over 70%) of landlords registered a single rental tenancy, with over 96% of landlords registering 5 tenancies or less. Landlords with 5 tenancies or less account for almost 72% of all registered tenancies. Therefore, their impact on overall housing affordability, for tenants or owner-occupiers, may be limited.
However, institutional investment is an important factor in increasing the overall supply of property, particularly of urban apartments, through forward-funding of development. Increasing the supply of urban apartments is essential to reach the National Planning Framework targets and commitment to a more sustainable living generally.
In relation to affordability, the Programme for Government seeks to put affordability at the heart of the housing system with a commitment to prioritise the increased supply affordable homes and to ensure that local authorities are central to delivering housing, and progress a State-backed affordable home purchase scheme to promote home ownership. To this end the Cabinet recently published the Affordable Housing Bill 2020 which provides for a number of affordable purchase and cost rental schemes. In addition, progress is continuing for the establishment of the Land Development Agency on a statutory basis who will be tasked to work with Government Departments, local authorities, State agencies and other stakeholders to assemble strategic sites in urban areas and ensure the sustainable development of social and affordable homes for rent and purchase.
