Dáil Éireann Debate, Tuesday - 29 May 2018
167. Deputy Pearse Doherty asked the Minister for Finance the tax exempt status of Irish pension funds that acquire property directly with no tax on the rental income of the pension fund and no capital gains tax were the pension to sell the property and make a gain. [23205/18]
Amharc ar fhreagra168. Deputy Pearse Doherty asked the Minister for Finance if his attention has been drawn to the tax neutral status of a company's (details supplied) rental income from the 262 apartments which it recently purchased in Churchtown, Dublin, due to the fact it is a pension and regulated fund, therefore exempt from dividend withholding tax under the Irish real estate fund regime. [23206/18]
Amharc ar fhreagraI propose to take Questions Nos. 167 and 168 together.
I am advised by Revenue that income from investments - including rental income on property investments – made by approved pension funds is exempt from income tax by virtue of section 774(3) Taxes Consolidation Act 1997 (TCA). Section 608(2) TCA grants exemption from capital gains tax on gains accruing on the disposal of investments, including property, held by pension funds approved under section 774 TCA. Benefits payable on or after retirement are taxable, subject to an entitlement to take a tax-free lump-sum.
There are restrictions on how these reliefs and exemptions apply. For example, where a pension fund acquires property which is to be used in any business of the sponsoring employer or a connected person, or where it sells assets to the employer or a connected person, the assets in question are treated as a pension paid under the fund and are subject to tax and any amount treated as a pension payment is no longer regarded as a fund asset.
In relation to Irish Real Estate Funds (“IREFs”), these are investment undertakings that derive 25% or more of their value from Irish real estate. I am not in a position to comment on a specific case, but the following comments apply to any approved pension fund which holds units in an IREF.
Pension fund providers utilise the funds received from their customers to invest, on their behalf, in a diverse portfolio of assets with a view to providing those customers with a pension upon their retirement. Pension fund providers may invest some funds in units in IREFs on behalf of their customers as a way of gaining exposure to a wider portfolio of Irish real estate than would otherwise be possible. In the case of smaller pension funds, it might not be possible to invest any funds in property if the entire property had to be acquired by the pension fund. Accordingly the potential to invest in units in an IREF provides some pension funds with the ability to include an exposure to Irish real estate where otherwise this opportunity would not be available.
The legislation surrounding the operation of withholding tax on IREF taxable events is contained in section 739P of the Taxes Consolidation Act (“TCA”) 1997. The definition of a ‘specified person’ for the purposes of section 739P TCA 1997 does not include a pension fund provided the IREF is in possession of a valid declaration from the pension fund in advance of the IREF taxable event. If the pension fund provides a valid declaration to the IREF in advance of the IREF taxable event then the IREF will not operate withholding tax.
Just as pension funds would not be subject to tax on profits or gains on Irish property if they held the property directly, they equally do not suffer IREF withholding tax where the exposure to Irish real estate is through such an investment vehicle. Of course as with any pension fund the benefits are taxable on the pension holders upon their retirement irrespective of whether their funds were invested by the pension fund directly in Irish real estate or indirectly through units in an IREF.
