Dáil Éireann Debate, Tuesday - 30 June 2015
222. Deputy Jerry Buttimer asked the Minister for Finance if he will consider extending similar tax treatment, as applies to the real estate investment trust scheme, to residential property owners; and if he will make a statement on the matter. [25717/15]
Amharc ar fhreagraA REIT is a collective investment vehicle which provides the same after-tax returns to investors as direct investment in rental property, by eliminating the double layer of taxation at corporate and shareholder level which would otherwise apply.
The double layer of taxation applies where an individual invests in property through a company. The company must pay corporation tax on rental profits and gains and when the after-tax profits are paid out to the investors (as dividends), income tax is then payable on the dividends received (i.e. on the profits which have already been subject to corporation tax).
The double layer of taxation does not apply to residential property owners directly holding property.
The purpose of a REIT is to remove this double layer of taxation, which has tended to result in individual investors holding individual, highly-mortgaged properties. This has exposed investors to significant risk in times of falling equity and falling rental returns.
A REIT is exempt from corporation tax on qualifying income and gains from rental property, subject to a high profit distribution requirement to shareholders (the Irish distribution requirement is 85% of property profits). Under Irish REITs legislation, there is no distinction in tax treatment between residential and non-residential property.
Irish investors are subject to tax on receipt of REIT dividends in broadly the same way as if they had invested directly in rental property.
When individuals invest directly in property, they are subject to income tax on their rental profits and capital gains tax on sales proceeds.
Similarly, REIT dividends will be taxable income for individual shareholders, so their rate of tax will depend on what other income they have in the relevant tax year. Marginal rate Irish taxpayers will be liable to income tax at their marginal rate on REIT dividends, and taxpayers under the marginal rate threshold will pay the standard rate of tax on their dividends.
Foreign individual investors will receive REIT dividends net of Dividend Withholding Tax at 20%, which may be mitigated under the terms of a double tax agreement. Foreign investors may also be subject to further tax in their country of residence.
