Dáil Éireann Debate, Tuesday - 11 May 2021
233. Deputy Pearse Doherty asked the Minister for Finance if he will conduct a review into the current tax exemptions in place for real estate investment trusts and Irish real estate funds with a view to restricting the advantage they enjoy over individual prospective buyers here; and if he will make a statement on the matter. [24234/21]
Amharc ar fhreagraInvestment funds are a long term presence in the Irish market, as in most other property markets. As with investment funds generally, tax occurs primarily at the level of the investor rather than within the fund. Additionally, in the case of both Irish Real Estate Funds (IREFs) and Real Estate Investment Trust companies (REITs), withholding taxes apply on distributions to investors to ensure collection of tax revenues.
The operation of such investment structures is kept under review and in recent Finance Acts I have made significant changes where concerns have been identified, to ensure that appropriate tax is collected.
In 2019, officials in my Department produced a report on REITs and IREFs as respects their investment in the Irish property market. The report was presented to the Tax Strategy Group and published in July 2019. It provided a basis for policy discussions and the amendments which were introduced in Finance Act 2019.
In relation to IREFs, amendments were made in Finance Act 2019 to prevent the use of excessive debt and other payments to reduce distributable profits, and to prevent the avoidance of tax on gains on the redemption of IREF units. In addition, the IREF return filing requirement was placed on a mandatory annual footing and the information which Revenue can request was increased to facilitate ongoing monitoring of the sector.
In relation to REITs, Finance Act 2019 extended the obligation to deduct DWT to include distributions of the proceeds of capital disposals. If the net proceeds from such capital disposals are not re-invested in the REIT business or distributed within a 2 year period, they become part of the profits of the REIT business, 85% of which must be distributed annually. In addition, the deemed disposal provisions upon cessation of REIT status were restricted to REITs that have been in operation for at least 15 years, in line with the regime's stated objective of encouraging long-term, stable investment in rental property.
These amendments were made to ensure appropriate levels of tax are paid by investors in Irish property.
Institutional investment in commercial and residential property is critically important to generating additional supply of property in Ireland through forward-funding of development projects, particularly in the area of high-density urban developments such as apartment buildings. Rebuilding Ireland identified the encouragement of the build-to-rent sector as a key factor in improving the rental sector and acknowledged that institutional investors have the potential to provide significant investment in such projects.
However I would note that I do not support the bulk purchase of completed homes by institutional investors, and I will be working together with Minister O’Brien to develop targeted measures to address this issue, and to direct institutional funding towards developments generating real additional supply for Irish households.
