Looking for dividend reinvestment plan at Irish REITs

I am thinking of setting up small investments for each of my three grandchildren. I want to know if any Irish REITs would re-invest any dividends over an extended period (say 10 years).

I know Vodafone does this but with sterling being so high, I thought a comparable Irish company would do this.

Mr BD, Louth There are currently three listed Irish real estate investment trusts. They are effectively a way for individuals to invest in property indirectly. Rather than putting your money into one property, you can spread the risk across a portfolio of properties by buying shares in a REIT.

In general, under the legislation governing Irish REITs, at least 85 per cent of property income from its property rental business must be distributed to shareholders.

As it stands, I am aware only of a dividend reinvestment plan at Hibernia REIT.

Shareholders can opt to reinvest their dividend in company shares subject to a 1 per cent dealing commission (minimum €4) and 1 per cent stamp duty. Clearly, there is no guarantee this scheme will continue for a decade as you suggest in your letter, though there is equally no reason that it will not.

It is always possible that the other Irish-listed REITs – Ires and Green – will introduce similar arrangements.

Will gift of apartment from parents leave me with CGT bill? I plan on getting a mortgage soon and my parents have an apartment they wish to give me (a gift valued under €200,000).

The apartment is worth €50,000 below what they paid for it. I am aware I will not have to pay any CAT, but I am worried about CGT. If they give me the apartment now and it increases by €50,000 in value and I decide to sell it at the price they bought it for, will I be liable for CGT of 35 per cent of €50,000 or is there some sort of exemption for CGT on gifts?

If this is the case, I presume I would be better off waiting for the apartment to appreciate to the original purchase price before I receive it, saving myself €17,500. In this scenario is there anyway I can release equity in the apartment while it is under my parents’ name?

Mr DM, email

Unfortunately, you haven’t given me the most important piece of information: do you already own any property and will this apartment be your “home” or, as Revenue would put it, “principal private residence”?

Assuming it is, the issue of capital gains does not arise – for you or your parents.

Thy have bought this apartment some time back, presumably as an investment. As it happens, it is currently worth less than they paid for it. That means they have made no capital gain and will not face any bill for capital gains tax on the transaction.

In fact, they will have a €50,000 loss on the purchase and sale of the apartment which they will be able to offset against gains elsewhere to reduce their exposure to capital gains tax generally.

From your perspective, assuming this is going to be your home and it is worth somewhere below €200,000, there is no capital gains tax issue. Capital gains tax does not apply to the gain in value of your principal private resident, only on investment property.

Of course, if you already have a home and this is an investment property, then you could face a capital gains tax bill on any increase in its value but that is the case whether you buy it now or at some later point if and when its value is restored to what your parents paid for it.

The bottom line is that your parents are responsible for any gain in value during the time they own the property and you will be responsible for any gain in the value of an investment property between the time you purchase it and the time you sell it. In the event of there being a gain, you can offset certain expenses incurred in buying and selling it before assessing CGT liability.

In terms of the gift side of things, as it is valued below the €225,000 limit, it is under the lifetime limit on gifts and/or inheritances that you can receive from your parents without incurring capital acquisitions tax (more commonly known as inheritance or gift tax), although it does not leave you much scope for further gifts or inheritance from your parents.

Although you mention the issue of a mortgage, I am assuming that is moot in this transaction. If, however, you were raising a mortgage to acquire all or part of this property, that would reduce the “gift” element. In light of the above, the issue of equity release does not arise.

Send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, D2, or email dcoyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice