Minister Donohoe comments on institutional property investors
The Minister for Finance, Paschal Donohoe TD, provided responses to Parliamentary Questions on the taxation of real estate investment trusts (REITs), prior to the enactment of section 31E SDCA 1999. He also provided insight into the stamp duty records for properties purchased by trusts, partnerships and companies, including REITs and Irish real estate investment funds (IREFs) for 2020. The Minister also discussed the importance of institutional investment in residential property but noted that he did not support the bulk purchase of homes by such investors.
In his response on the taxation of REITs, the Minister detailed that the purpose of the 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. This double layer of taxation is removed by providing that REITs are not subject to corporation tax on their rental profits or on any gains that arise from the disposal of rental properties, and requiring that REITs must distribute at least 85% of profits annually for taxation at the level of the investor”.
He discussed the criteria that must be met to avail of the REIT tax regime and explained how a REIT investor is taxed:
- Dividend withholding tax (DWT) at a rate of 25 percent applies to REIT distributions;
- Irish residents pay tax at their marginal rate on distributions received, with a credit available for the DWT deducted;
- Foreign investors may be able to reclaim some of the DWT under the relevant tax treaty. Most commonly, Ireland would retain the right to 15 percent tax on such distributions;
- Excluded investors, such as pension schemes and charities, may receive distributions gross, and tax arises on further distribution, such as the taxation of a pensioner on receipt of their pension.
In relation to the stamp duty records for 2020, the Minister approximates that 1,330 properties were purchased by the types of entities concerned, amounting to stamp duty payments of €9.1 million. He detailed that of those properties 99 percent were residential, representing 3 percent of the total residential transactions in 2020.
In a separate response the Minister discussed the importance of institutional investment in commercial and residential property in generating supply through forward-funding of development projects. He went on to emphasise that despite their importance, he did not support the bulk purchase of homes by institutional investors.
He confirmed that he was working with the Minister for Housing, Local Government and Heritage, Darragh O’Brien TD, to develop targeted measures to address the issues and ensure that institutional investment generates real additional supply.