Monday 14 October 2019

Cuckoo funds' tax avoidance schemes targeted

Minister for Finance and Public Expenditure and Reform, Paschal Donohoe. Photo: Gareth Chaney/Collins
Minister for Finance and Public Expenditure and Reform, Paschal Donohoe. Photo: Gareth Chaney/Collins
John Mulligan

John Mulligan

So-called 'cuckoo funds' that buy swathes of apartments to rent out - meaning potential buyers can't get a foot on the property ladder - have been targeted for their aggressive tax avoidance efforts.

The funds - investment vehicles that have huge financial firepower - can severely limit their tax liabilities by writing off interest they pay on loans used to buy properties.

Those loans are often provided by a connected company at very high interest rates.

However, the cuckoo funds have continued to avoid commercial stamp duty, as it doesn't apply to residential properties.

Paschal Donohoe hiked the rate of stamp duty on the sale of non-residential property by 1.5 percentage points to 7.5pc.

He expects the increase to raise an additional €141m.

While cuckoo funds pay tax on gains, those gains can sometimes be artificially limited, reducing the overall tax liability.

"Revenue has identified that some IREFs [Irish Real Estate Funds] have engaged in aggressive behaviour to avoid tax," said Mr Donohoe yesterday.

Mr Donohoe also told the Irish Independent: "I've real concerns about how the issue of expenses within some of these organisations are being managed.

"They are being managed in a particular way and I have concerns about the level of tax that they are paying.

"I have a particular concern in relation to how stamp duty is being managed. Companies are putting in place planning arrangements which mean they are not paying what I believe to be the right level of taxation.

"These organisations have a role here in Ireland in providing long-term additional accommodation and commercial property but I do have expectations for how taxes are paid."

New measures will aim to "combat the artificial avoidance of gains on redemptions of IREF units".

Property purchases by cuckoo funds and local authorities have surged in recent months, squeezing out first-time buyers.

Figures released last month showed a fall of 6pc in the number of new homes bought by households in the year so far.

But over the same period, non-household purchases had shot up by 60pc.

Irish Independent

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