Pearse Doherty (Donegal, Sinn Fein)
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151. To ask the Minister for Finance the estimated revenue that would have been generated had the full rate of capital gains tax applied to the disposal of assets by IREFs and REITs in each of the years 2019, 2020 and 2021; and if he will apply the full rate of capital gains tax to such disposals in the future. [54428/21]

Paschal Donohoe (Dublin Central, Fine Gael)
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Finance Act 2013 introduced the regime for the operation of Real Estate Investment Trusts (REITs) in Ireland. REITs are collective investment vehicles designed to hold rental investment properties in a tax neutral manner. 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.

A REIT is generally not chargeable to capital gains tax (CGT) accruing on the disposal of assets of its property rental business, subject to certain exceptions. However a REIT is subject to CGT if it realises a gain on:

- any asset that has been developed by the REIT to the extent that the development cost exceeds 30 per cent of the market value of the asset at the time the development commenced, where the asset is then disposed of within 3 years of completion of the development, and

- the disposal of any assets which are not held for the purposes of the property rental business.

While REITs are generally not chargeable to capital gains tax accruing on the disposal of its property rental assets, they are subject to restrictions not placed on other companies that invest in Irish property. These restrictions include a requirement to distribute 85% of all property income profits annually to investors and to maintain a property to financing costs ratio of 1.25:1.

An Irish Real Estate Fund (IREF) is an investment undertaking where 25% or more of the value of that undertaking is made up of Irish real estate assets. The legislation was introduced to address concerns raised regarding the use of collective investment vehicles by non-residents to invest in Irish property. Investors had been using the structures to minimise their exposure to Irish tax on Irish property transactions.

As IREFs are investment undertakings, investors are taxed in a similar manner to other investment undertakings. Irish residents investing in IREFs are subject to exit tax at 41% on income/gains from IREFs, just as they are taxed on income/gains from funds generally. USC and PRSI do not apply to this income. IREFs must deduct a 20% withholding tax on certain property distributions to non-resident investors. This is the standard rate of income tax and is deemed an appropriate rate to apply to non-resident investors. In some circumstances the withholding tax can be reduced by double taxation treaties.

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.

I am advised by Revenue that it is not possible to provide the estimates sought by the Deputy, as the underlying information in respect of the gains made on disposal of assets by IREFs or REITs is not available from tax returns or other sources available to Revenue.

In addition, there are no plans to make further changes to either the REIT or IREF regimes at this point.