Thursday, 25 October 2018
Ceisteanna Eile - Other Questions
9. To ask the Minister for Finance his views on whether it is acceptable in view of the dramatic inflation of the property market, particularly in relation to rapidly rising rents and property values, that corporate landlords and property investors should continue to avail of tax reliefs such as section 110 and that he is unable to ascertain the amount of tax revenue that is forgone through such reliefs; his further views on whether the imposition of a higher effective tax rate on the large profits being generated in this sector should be reconsidered; and if he will make a statement on the matter. [44226/18]
The Minister will see that I am on the theme of housing, and the Minister's connection to it, with all my questions of both yesterday and today. The other side of the coin in regard to this housing and homelessness crisis is the lesser known fact that vast amounts of money are being made by corporate landlords and property speculators who are also availing of tax reliefs. The Minister cannot give me an answer to a question I have asked repeatedly as to how much tax is being forgone in section 110 tax relief. Given the obvious profit bonanza being enjoyed by property speculators and landlords, we need to look at whether we need to find new ways to tax this sector to give us more money to build social housing and other things we need in our economy.
I do not need to be reminded of my role in respect of housing. I work as closely as possible with the Minister, Deputy Eoghan Murphy, to look at how to make new resources available and to ensure the appropriate policies are in place. Deputies will recall that amendments to the taxation of section 110 companies were made in the Finance Act 2016 specifically to address the issue of returns relating to Irish property. Section 110 companies can only hold certain qualifying assets and real property, such as land and buildings, that are not an asset that a qualifying company can hold. They can, however, hold loans and other financial assets that derive their value from Irish land and buildings.
The changes made in the Finance Act 2016 relate to the taxation of qualifying companies which held loans that derived their value from Irish land. The effect of these changes was to ensure that profits generated from Irish real estate remain within the charge to tax.
The Finance Act 2016 also provided for the introduction of a new Irish real estate fund regime which made changes to the way in which Irish funds which derive 25% or more of their value from Irish real estate are taxed. A new 20% withholding tax was introduced on distributions from these funds.
The Finance Act 2013 provided for the operation of real estate investment trusts, REITs, in Ireland. The function of the REIT framework, in common with other jurisdictions, is not to provide an overall tax exemption but rather to facilitate collective investment in rental property.
I have been aware of concerns about the level of activity of the institutional sector in the housing market. I refer the Deputy to data from the Residential Tenancies Board included in this year's tax strategy group, TSG, paper on corporation tax, which demonstrates that over 91% of landlords hold three or fewer tenancies. The 20 largest landlords in Ireland now account for 3% of total tenancies. It is unlikely that landlords accounting for such a small proportion of tenancies are significantly influencing rental prices in the overall market.
We are talking about the likes of Lone Star, Kennedy Wilson, Cerberus, all these people with whom the Minister's Department, under the management of Deputy Noonan, had 65 meetings in 2013. They swooped in and bought huge amounts of land and property. They will, if I understand this correctly, continue to benefit from section 110 tax relief, which means that if they maintain their investments for a certain period - seven years, I think - they will pay no tax on the rental income or capital gains. Considering that rents have gone up 60% to 70% in that period and property prices have gone up by about a similar percentage, they are walking away with an obscene fortune. Making a distinction between a property and the loans used to purchase property is just semantics because that is what they do: they borrow money to get into Irish property or land and they can then write that off if they are a foreign investor and get massive tax relief. What is shocking is that the Minister cannot quantify it. There is the answer.
I will deal with each of the points the Deputy raises with me. To respond to the first point, the most recent information available to me - and I have checked this on the back of concerns he and other Deputies have raised - is that real estate firms in 2017 were net purchasers of 1% of transacted housing stock. They are the figures. That is the effect they are having on housing transactions in Ireland. Firms in this category currently purchase less residential stock than public authorities, so our public authorities, in the desire to deal with the difficulties the Deputy correctly raises, are purchasing more housing stock than these bodies are purchasing.
As for the Deputy's concern about my not being able to calculate the amount of tax that would be paid by these companies, the reason for this is that we have a regime in place, which many other countries have in place and which was put in place to try to increase housing output, and he is asking me to state what these companies would pay in tax if that regime were not in place. Of course, the challenge I have on this point is that it is not at all clear whether these companies would be active in providing new homes if we did not have such a regime in place. That is at the heart of the difficulty the Deputy has raised.
The 2017 figure is misleading because we are talking about the window between about 2012 and the point at which the change was made in 2016. It was in this period that NAMA flogged off most of its land and assets, about €40 billion worth. It was not the little accidental landlord buying the stuff from NAMA; it was Kennedy Wilson, Cerberus, Lone Star and all these big boys. They swooped in on Irish land and property assets. Did they solve the housing crisis, as Deputy Noonan predicted they would, and create a new professional landlord sector? That is what Deputy Noonan said at the time. Not at all. They sat on their assets and will get huge tax relief. In many cases they just sit on the land; in some cases they are sitting on empty property. I know of two such cases and have highlighted them twice in here. Cerberus and Apollo Global Management are trying to de-tenant property and are just sitting on perfectly good empty apartments because they are watching the value clock up and they know they will walk away without paying any tax.
Of course, much of what happened across that period, 2013, 2014 and 2015, happened because our country was at such a level of exceptional economic difficulty and because we did not have investors or investment funds in Ireland that were capable of making those kinds of acquisitions themselves. I have looked at the figures for the most recent period. They are as I have just shared with the Deputy. The reason I believe the taxation regime is appropriate is that I believe some of these companies are playing a role in bringing new housing stock into our economy for our citizens and, at a time of such housing need, that is an important role to be played.