Donohoe to review tax-efficient property funds and SPVs

Budget 2023: Evaluation to see how tax-efficient vehicles ‘can continue to support’ housing delivery

Minister for Finance Paschal Donohoe committed on Tuesday to starting a review of the Republic’s real-estate investment trust (Reit) and property funds regimes to see how these tax-efficient vehicles “can continue to support” housing delivery.

The Minister also said he plans to commence a review of the use of so-called section 110 special purpose vehicles (SPVs) and set up a working group to consider the taxation of funds, life assurance policies and other investment products.

The pledges follow on from recommendations from the Commission on Taxation and Welfare in its landmark report, published earlier this month, that the Government look into all three regimes and their use by institutional investors in the property market.

“Institutional investment has played a key role in the provision of housing in recent years,” said Mr Donohoe. “This review will consider those structures and how best they can continue to support housing policy objectives.”


As the Section 110 rules, introduced in 1997 to turn Dublin into an international financing and fundraising hub, apply to a broad range of assets beyond debt over Irish land and property, the commission said this area should be subject to a wide review.

“Public commentary and feedback to the commission’s public consultation have highlighted concerns over the increasing impact of institutional investment in the Irish property market. In particular, the tax status of Irish Real Estate Funds (Irefs), Real Estate Investment Trust (Reits) and section 110 companies has attracted attention,” the commission’s report said.

Budget 2023: What it means for businesses and taxpayers

Listen | 00:00

Budget 2023 main points: Vacant homes tax introduced, excise reductions on fuel extended, tax credits for renters ]

Putting money back in people’s pockets will not offset effects of ongoing inflation ]

Do you have a query on how this year’s budget affects you? ]

Standard rate income tax threshold rises €3,200 to €40,000 ]

The Iref regime, set up in 2016 to address concerns over the use of collective investment vehicles by certain non-resident investors to minimise their exposure to Irish tax on Irish property transactions, must withhold tax at 20 per cent from certain property distributions to non-resident. Still, this is not deducted from payments to exempt investors, such as Irish regulated funds, section 110 companies, life assurance companies, charities, pension funds and EU-based equivalents.

Reit legislation in 2013 paved the way for the flotations of Green Reit, Hibernia Reit, Ires Reit and Yew Grove Reit on the Dublin market. Such trusts must distribute 85 per cent of their rental profits annually by way of dividends, which are subject to a 25 per cent withholding tax rate.

However, certain types of investors, such as a pension schemes or charities, are exempt from this tax. Of the four Reits that listed, only Ires remains on the market.

Former finance minister Michael Noonan moved in 2016 to clamp down on how ultra-tax efficient section 110 vehicles, originally designed to house debt involved in bond market transactions, had been used by investment funds to hold Irish property debt traded following the financial crash. He introduced a 25 per cent rate on Irish property loans in SPVs.

Joe Brennan

Joe Brennan

Joe Brennan is Markets Correspondent of The Irish Times