Tax breaks for property sector

Derek Moran, assistant secretary at the Department of Finance, at a media briefing in Government Buildings in Dublin yesterday. photograph: brenda fitzsimons

Derek Moran, assistant secretary at the Department of Finance, at a media briefing in Government Buildings in Dublin yesterday. photograph: brenda fitzsimons

Thu, Feb 14, 2013, 00:00

The Government yesterday published the details of two initiatives it hopes will stimulate the ailing property sector.

The Finance Bill has made provision for the establishment of real estate investment trusts (Reits), which are designed to attract foreign capital into the Irish property market.

In addition, they announced pilot projects for Waterford and Limerick city that would allow owner-occupiers of Georgian houses and certain retail properties to renovate substantially their premises and write off the cost against their tax bills over a 10-year period.

This is subject to approval from the EU under state aid rules, a process that could take many months, according to the department.

Tax exempt

The Reits will be listed companies exempt from corporation tax on qualifying income, and capital gains tax related to rental investment property.

At least 75 per cent of the income of the Reit will have to be derived from property rental and each vehicle will be required to have a minimum of three properties on its books.

The Reit will be required to distribute to shareholders “at least” 85 per cent of its income each year, subject to it having sufficient distributable reserves. This will be by way of a property income dividend.

The department said Reits are an established model in most developed countries and that “without a regime, you are not in the game”.

It is also hopeful that an “IFSC hub” for Reits might be established for investment across Europe.

There was broad approval for the establishment of a framework for Reits. Martin Phelan, president of the Irish Tax Institute, described it as a “welcome move”.

Donal O’Sullivan, tax partner at Ernst Young, said the department had followed the British model, omitting the barriers to entry that were seen to “hinder the UK regime”.

The Government also published the detail around its 10-point plan to help boost SMEs. This included two new provisions.

The “key employee” provision of the research and development tax credit regime is being reduced from 75 per cent to 50 per cent in relation to the proportion of time that these staff must spend on RD activities.

Investment incentive

The employment and investment incentive is also being extended to include hotels, guesthouses and self-catering accommodation. This is subject to EU approval and will be reviewed after two years.

The auto-diesel excise duty relief has been extended to include bus and coach operators as well as hauliers.

In aviation, hangars for maintenance and repair will be redesignated as industrial buildings to allow them to benefit from accelerated capital allowances. This will apply to all Irish airports.

The Bill also extends the film relief scheme out to 2020 with changes made to how the reliefs will operate from 2016.

Some tax avoidance loopholes were addressed in the Bill. These include the abolition of foreign service tax relief on lump sums paid to employees of multinationals on retirement or termination of their service.

Overseas companies

This is aimed at preventing overseas companies with a presence here from transferring staff to Ireland for a short period of time before they end their careers in order to qualify for a near tax-free lump sum.

In future, loans paid to staff members via employee benefit trusts will be treated as income.