Holly Cairns
Ceist:290. Deputy Holly Cairns asked the Minister for Finance his views on ceasing the real estate investor tax; and if he will make a statement on the matter. [25577/21]
Amharc ar fhreagraTuesday, 18 May 2021
Ceisteanna (290)
Freagraí scríofa
It is presumed that the Deputy is referring to Real Estate Investment Trust regime.
Finance Act 2013 introduced the regime for the operation of Real Estate Investment Trusts (REITs) in Ireland, based on an established international standard. The purpose of the REIT regime is to allow for a collective investment vehicle which provides a comparable after-tax return to investors to direct investment in rental property, by eliminating the double layer of taxation at corporate and shareholder level which would otherwise apply. REITs are required to distribute 85% of all property income profits annually to investors. Dividend Withholding Tax (DWT) at a rate of 25% must be applied to a REIT’s distributions, other than those distributed to certain limited classes of investors such as pension funds and charities as they are more generally exempt from tax.
While not referred to specifically in the Deputies question, the Irish Real Estate Fund (IREF) regime is also of relevance in relation to the Irish property market. Finance Act 2016 introduced the IREF regime to address the use of certain fund vehicles to invest in Irish property by non-resident investors, thereby avoiding a charge to tax on profits arising from Irish real estate. The regime provides that the profits arising to an Irish fund from Irish property remain within the charge to Irish tax. 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 having IREF withholding tax applied provided the appropriate declarations are in place - again these are generally gross roll-up regimes where tax is accounted for on distribution, for example the taxation of pensions paid out to pensioners.
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 REITs, Finance Act 2019 extended the obligation to deduct DWT to include distributions of the proceeds of capital disposals. 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. 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. 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 am currently working together with the Minister for Housing to develop targeted measures to address this issue, and to direct institutional funding towards developments generating real additional supply for Irish households.