Sunday 4 December 2016

Real Estate industry responds negatively to Government move to tax income from assets held by QIAIFS and ICAVS

Published 23/10/2016 | 02:30

Michael Noonan's intention to introduce a withholding tax of 20pc on distributions from Irish assets held by predominantly international investors in vehicles such as QIAIFs and ICAVs has been met negatively by the commercial real estate sector.
Michael Noonan's intention to introduce a withholding tax of 20pc on distributions from Irish assets held by predominantly international investors in vehicles such as QIAIFs and ICAVs has been met negatively by the commercial real estate sector.

THE confirmation in the Finance Bill of the Government's intention to introduce a withholding tax of 20pc on distributions from Irish assets held by predominantly international investors in vehicles such as Qualifying Investor Alternative Investment Funds (QIAIFs) and Irish Collective Asset-management Vehicles (ICAVs) has been met negatively by the commercial real estate sector.

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The proposed new tax is to apply to vehicles classed as Irish Real Estate Funds (IREFs) - where 25pc or more of their value is made up of real estate assets. The tax is to be calculated on rental profits and gains from trading or development. Gains on disposal of assets held for at least five years will not be subject to the tax. The new regime will have no impact on Irish Reits, nor will it apply to certain categories of investors such as pension funds, life assurance companies and other collective investment undertakings.

Responding to the changes in Goodbody's market wrap last Friday, the firm's senior real estate analyst Colm Lauder said it was Goodbody's view that the changes "may be damaging for the Irish market".

Lauder warned that the amendments could reduce the prices certain funds were willing to pay to invest in Irish real estate.

"The changes will affect the price that certain funds will be willing to pay for assets, potentially dampening capital values and liquidity if the pool of purchasers reduces, though could present opportunities for unaffected investors."

Lauder said the proposed legislation could cause "significant reputational damage" for the Irish real estate sector.

Referring to the confusion the Government's review of the taxation regime had caused, he added: "Investors, albeit wrongly, have been questioning if this affects Reits, highlighting the perception difficulties of such a change".

In a note sent to CBRE clients following the publication of the Finance Bill last Thursday, CBRE head of research Marie Hunt warned that funds affected by the proposed legislative changes would look to pay lower prices for Irish property assets in the future.

Hunt said, however, that given the complexity of the legislation, investors and their advisors would need time to absorb what was being proposed.

She said: "Several types of funds are exempt and not all investors invest in Irish real estate through the structures specifically affected but those that do are likely to pay a lower price for Irish real estate assets going forward if they have an unexpected tax liability to account for."

Sunday Independent

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