Donohoe to review property funds and tax-advantaged SPVs – The Irish Times

Finance Minister Paschal Donohoe pledged on Tuesday to begin a review of the Republic’s real estate investment trust (REIT) and housing fund regimes to see how these tax-advantaged vehicles “can continue to support” housing delivery.

The Minister also said he planned to initiate a review of the use of so-called Section 110 Special Purpose Vehicles (SPVs) and set up a task force to look at the taxation of funds, life insurance policies and other investment products.

The pledges follow recommendations from the Tax and Social Care Commission in its landmark report, released earlier this month, calling on the government to review the three regimes and their use by institutional investors in the property market.

“Institutional investment has played a key role in providing housing in recent years,” Donohoe said. “This review will look at these structures and how best they can continue to support housing policy goals.”

As the Section 110 rules, introduced in 1997 to make Dublin an international financing and fundraising hub, apply to a wide range of assets beyond debt on land and Irish property, the committee said this area should be given wide scrutiny.

“The public comments and reactions to the commission’s public consultation have highlighted concerns about the growing impact of institutional investing on the Irish property market. In particular, the tax status of Irish Property Funds (Irefs), Real Estate Investment Trusts (Reits) and Section 110 companies has attracted attention,” the committee report states.

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The Iref scheme, introduced in 2016 to address concerns about the use of collective investment vehicles by certain non-resident investors to minimize their exposure to Irish tax on Irish property transactions, must withhold tax 20% on certain real estate distributions to non-residents. resident. Yet this is not deducted from payments to exempt investors, such as Irish regulated funds, Section 110 companies, life assurance companies, charities, pension funds and their equivalents based in the EU.

The 2013 Reit legislation paved the way for the IPOs of Green Reit, Hibernia Reit, Ires Reit and Yew Grove Reit in the Dublin market. These trusts must distribute 85% of their rental profits annually as dividends, which are subject to a 25% withholding rate.

However, certain types of investors, such as pension plans or charities, are exempt from this tax. Of the four listed Reits, only Ires remains in the market.

Former finance minister Michael Noonan moved in 2016 to crack down on how super-efficient Section 110 vehicles, originally designed to hedge the debt involved in bond market transactions, had been used by investment funds to hold Irish property debt traded after the financial crash. He introduced a 25% rate on Irish home loans in SPVs.