Investment trust plan to boost sales of property
The Government hopes to kick-start the upper end of the property market with new legislation to pave the way for the establishment of Real Estate Investment Trusts (REITs), Michael Noonan said in his Budget speech.
REITs are tax-efficient, stock market-listed companies set up specifically to invest in portfolios of property.
Rules differ from country to country. In most cases, a REIT must have a minimum number of shareholders, often 100. Typically a minimum of 75pc of income must come from rents.
For most investors, the biggest attraction of investing in a REIT is the tax-free treatment of rental income.
In the UK, for example, rent paid to a REIT by tenants is not liable for any tax as long as 90pc of rental profits are distributed to shareholders of the REIT each year. Individual shareholders, however, are liable for tax on their dividends.
Under the proposed Irish model, REITs will also be required to distribute profits annually, again for taxation at investor level.
However, one issue that could impact on investor appetite will be the treatment of capital gains.
In traditional REITs, the capital gain when property is sold at a profit is only taxed when a payout from the REIT is made to the individual investor.
In the Irish case, the Department of Finance is considering measures that would maintain taxing rights in the State over gains from selling assets. Full details of the Irish REIT structure will be published in the Finance Bill in February.
If the idea takes off, the new class of stock market-listed investment funds will provide a boost to the Irish Stock Exchange (ISE).
Last night, a spokeswoman for the ISE welcomed the announcement.
A spokesman for Nama also welcomed the development.
It would not affect Nama's plan to set up a second type of investment vehicle, known as Qualified Investor Funds, to buy some of its assets, the spokesman said.
Other banks with large property and loan portfolios are also likely to benefit by an increased pool of potential buyers.
"The REIT proposal should facilitate investment from non-resident institutional, private equity and pension groups in Irish commercial property," said Padraic Whelan, head of real estate at accountancy firm Deloitte.
Irish Independent Supplement