IPOA has compared the tax regime enjoyed by REITs to the former Section 23 Tax Relief schemes. Investment funds or Real Estate Investment Trusts (‘REITs’) benefit from tax treatment that allows rental income to be earned free of income tax and capital gains to be tax free.
Private landlords currently pay income tax up to 51% on rental profits and 33% on capital gains.
Tom O’Brien, Chairman of the Finance Committee of the Irish Property Owners’ Association said the tax breaks that REITs benefit from goes far beyond Section 23. “The tax regime for investment funds is ironic given that the old Section 23 schemes were heavily criticised due to their perceived cost to the Exchequer. The tax regime for REITs is essentially Section 23 for life without any caps or restrictions. The Section 23 Capital Allowances schemes were far better value to the taxpayer as they secured much needed housing stock, but they ended after a maximum of ten years. On the contrary the REIT schemes continue forever without any return to the Exchequer and the reality of the situation is that the supply being brought to the market by these funds will come at a significant cost to the taxpayer. I don’t see any justifiable basis for continuing them in their current format.”
O’Brien compared the tax regime for REITs to that which prevails for the private landlord. “The inequity of the tax system between REITs and private landlords could not be starker. REITs are exempt from income tax whereas the private landlord pays a marginal rate of 51% including USC. The Government have saw fit to agree to REITs paying no income tax whilst at the same time denying private landlords a tax deduction for standard business expenses such as LPT. There is no basis or logic for the disparity in treatment although the Government will point to supply as an excuse. Does the much greater supply provided by the private landlord not count in this regard?”
There has been concerns in certain sectors that the introduction of tax measures could result in an exit of investment funds from the market which O’Brien disagrees with. “I don’t buy the claim that these funds will exit the market if a level of tax is levied on them. The level of return that these funds are enjoying from a gross rental roll up scenario far outstrips what they can get in other asset classes in other jurisdictions and therefore there is scope to introduce a flat rate of income tax without impacting demand from the funds. This would also enable the Government to afford hard pressed private landlords some relief from the excessive tax burden that they currently pay.”