Paschal Donohoe (Dublin Central, Fine Gael)
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The Deputy will be aware that section 604A of the Taxes Consolidation Act, 1997 provides for relief from Capital Gains Tax (CGT) on the disposal of certain investment property purchased between 7 December 2011 and 31 December 2014, where that property is held for 7 years. The gain attributed to that 7-year period will not attract CGT. However, where the property is held for more than 7 years, relief is reduced in the same proportion that the period of 7 years bears to the period of ownership, so if the property is held for 9 years, 7/9 of the gain will be relieved.

This relief was amended in Finance Act 2017 for disposals made on or after 1 January 2018, to provide that gains on land and buildings acquired between 7 December 2011 and 31 December 2014 are not chargeable gains where the land or buildings are held for at least 4 years and up to 7 years from the date they were acquired.

I would note that the structure of the relief means that 2018 is the first year that this relief could be claimed by taxpayers.

I am advised by Revenue that detailed statistics on the relief from Capital Gains Tax under section 604A of the Taxes Consolidation Act 1997 are published on Revenue’s website at: www.revenue.ie/en/corporate/documents/statistics/tax-expenditures/relief-on-disposal-of-certain-land-or-buildings.pdf.

These statistics include the cost of the relief and other information.

Paschal Donohoe (Dublin Central, Fine Gael)
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A Real Estate Investment Trust (REIT) is a quoted company used as a collective investment vehicle to hold rental property. The purpose of the REIT regime is to allow for a collective investment vehicle which provides a comparable after-tax return to investors as direct investment in rental property, by eliminating the double layer of taxation at corporate and shareholder level which would otherwise apply.

In order to ensure distribution of profits for taxation at the level of the shareholder, REITs are obliged to distribute at least 85% of property profits annually to shareholders. REITs are obliged to operate Dividend Withholding Tax (DWT), at the standard rate of 25%, on distributions to shareholders. The DWT is available as a credit against the shareholder’s tax liability.

For Irish investors:

- Individuals are liable to tax at their marginal rates on dividends received, with credit for the DWT deducted;

- Corporates will be liable to tax at 25%, with credit for DWT; and

- Institutional portfolio investors are liable to tax on REIT dividends at 12.5%, this being the rate generally applicable to trading income.

Foreign investors are also subject to the DWT at 25%. Those resident in treaty-partner countries may be able to reclaim some of this DWT under the relevant tax treaty. Tax treaty rates on dividends vary from treaty to treaty, but the most common rate applicable to small shareholdings would be 15% - this means that Ireland would retain taxing rights of 15% on dividends paid from Ireland.

Excluded investors, such as pension schemes or charities investing in the REIT, may receive distributions gross, subject to completion of appropriate declarations. Such entities are more generally exempt from tax or subject to gross roll-up regimes in view of their own purposes or objectives.

To avoid a double layer of taxation, a REIT (or a group REIT) is ordinarily exempt from corporation tax on income from its rental property business and chargeable gains accruing on disposal of assets of their property rental business.

Due to Revenue’s obligation to protect taxpayer confidentiality, and there being fewer than 10 REITs, it is not possible to provide an estimate of the net tax revenue which would accrue if REIT companies were subject to corporation tax, rather than the current regime of taxation at the level of the shareholder.

However, REITs are required to be publicly listed companies and therefore publish information such as annual accounts online, which may be of assistance to the Deputy.

In addition to the above, it should be noted that REITs are not entirely exempt from tax and there are a range of circumstances in which a REIT may accrue a direct tax liability, including the following:

- Any non-rental property profits are subject to corporation tax and capital gains tax in the normal manner.

- As REITs are designed to encourage long term property investment, there are anti-avoidance rules to prevent REITs being used as property development vehicles. If a REIT acquires an asset and following that acquisition, develops the asset to such an extent that the cost of development exceeds 30% of the market value of the asset at the time the development commenced, and the asset is then disposed of within 3 years of development, the corporation tax and capital gains tax exemptions will no longer apply.

- To prevent indefinite deferral of tax at the shareholder level, a REIT will be charged to corporation tax under Case IV of Schedule D if it distributes less than 85% of its annual property income.

- A REIT (or a group REIT) will also be charged to corporation tax under Case IV of Schedule D if it pays a dividend to a shareholder who holds more than 10% of its shares or if, in computing the profits available for distribution, it has taken a deduction for any amount which is not wholly and exclusively incurred for the purposes of:

- the property rental business, where it relates to the property rental business of the REIT, or

- the residual business where it relates to the residual business of the REIT.

I am informed by Revenue that gross REIT DWT collected in 2021 amounted to €15,361,133. Revenue processed €3,218,997 of REIT DWT refunds in 2021.