Michael Noonan (Limerick City, Fine Gael) | Oireachtas source

A capital gains tax relief on disposals of land or buildings acquired in the period commencing on 7 December 2011 and ending on 31 December 2013 was announced in budget 2013 and in section 64 of the Finance Act 2012. Section 44 of the Finance (No. 2) Act 2013 extended the period within which the land or buildings may be acquired for the purposes of this relief to 31 December 2014. If the property is held for the full seven years, the land or buildings will qualify for the full relief. Partial relief is available if the property is held for longer than seven years.`

I am advised by Revenue that it is not possible to estimate with any degree of accuracy the impact of the capital gains tax relief granted in respect of land and buildings, including commercial property, introduced in budget 2012 and extended in budget 2014. I am further advised by Revenue that, in view of the fact that the nature of the relief is time related and requires a minimum ownership period of seven years, which ownership period could not commence earlier than 7 December 2011, it will not be in a position to offer initial soundly based costings until the returns for the tax year of 2018 have been processed. More detailed costings would follow on from the processing of tax returns from 2019 onwards. There is therefore no basis at present on which to prepare a report on the cost of this relief.

With regard to Irish real estate funds, IREFs, the proposal ensures that any rental income or development profits earned by the IREF will be included in the calculation of the IREF's profits. Capital gains will also be included in the calculation of profits unless the asset is held for five years or more. The exemption from capital gains has been legislated for to encourage sustainable investment focused on the long-term holding and management of income-producing rental property. This will, in the longer term, lead to a more sustainable and secure property market for both investors and property tenants while generating regular and reliable tax revenues for the Exchequer from the taxation of the rental profits. Although any gain may be exempt where the property is held for more than five years, tax will still be payable on the rental income that is being generated. It should be noted that this exemption reflects the current position regarding capital gains tax, CGT, and funds and does not reduce the current tax burden on funds. Therefore, it does not give rise to an additional cost.

To ensure, however, that the IREFs cannot be used for tax planning, as I have noted, I am proposing a Report Stage amendment which removes from section 22 the ability of an investor who has influence or control over the IREF to receive a distribution of capital gains without the operation of the new 20% withholding tax. This proposed IREF is not a tax incentive for people investing in commercial property. All rental income and development profits earned by the IREF will be included in the calculation of the IREF’s profits. Where an IREF makes a distribution of these profits, non-resident investors will be subject to a withholding tax of 20%. The proposal has been drafted in a balanced way to ensure the Irish tax base is protected where Irish property transactions are taking place within collective investment vehicles while not damaging the commercial property market in the long term. The IREF provisions apply to accounting periods beginning on or after 1 January 2017. Therefore, as the Revenue Commissioners will not receive accounts for these funds until mid-2018, it would not be practicable to prepare the report in the timeframe requested. I cannot accept the proposed amendment. Of course, when the data are available, it will obviously be reported on and the kind of information the Deputy has requested will be provided in due course.

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