Tax Treatment of Landlords has to be Revisited

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Broadcaster said:
Bigger problem on the horizon is the likelihood of Sinn Fein being in Government. They can’t wait to crucify the landlord further. They don’t care about losses incurred by landlords, unpaid rent, bad tenants etc. they only see things from one side.
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Irish Independent had an interesting poll regarding the lifting of the eviction ban. Was almost split 50/50 in favour of the lifting of the ban. 60+% of those who voted on not lifting it were renters. So if you extrapolate this out only 30% of those polled are directly affected by the lifting of the ban.

The Independent believe the biggest issue on the next election will be housing. I can't for the life of me find the link. If this is the case any reduction in private property rights via the constitutional changes may not go through the way parties on the left want wish.
 
murphaph1 said:
So all landlords are treated equally by the tax code? I was under a misconception so. If REIT shareholders live outside Ireland, are their REIT distributions based on properties located in Ireland taxable in Ireland?
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If REIT shareholders are Irish resident, then they pay tax, USC, etc in the normal way. There is a 25% withholding tax on dividends which is credited against the Irish taxpayer's ultimate liability. If resident outside Ireland, then a different regime applies. The 25% withholding tax is taken, but there is no other liability for Irish tax. But, it gets better - here's the interesting bit: if the country of residence has a double taxation treaty with Ireland, and most significant countries do, then most of that 25% can be refunded to the foreign shareholder. (If the foreign shareholder had directly invested in Irish property, the income and capital gains would be taxable in Ireland in the normal way.)
 
They are likely to be taxed on the income in their country of residence

If their country of residence is a tax haven, then that's a different matter altogether
 
jpd said:
They are likely to be taxed on the income in their country of residence

If their country of residence is a tax haven, then that's a different matter altogether
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It would be very interesting to see statistics on all of this, if for no other reason than to facilitate an informed debate. A good start would be for Revenue to disclose the amount of withholding tax paid by REITs and what percentage of this was refunded to foreign investors.

I suspect the answer to both would be "quite a lot" which makes you wonder why we have such a REIT favourable regime? And if the answer to the "why" question is to encourage investment in rental property, then surely logic would dictate similar encouragement for Irish residents. Wouldn't it?
 
Right Winger said:
It would be very interesting to see statistics on all of this, if for no other reason than to facilitate an informed debate. A good start would be for Revenue to disclose the amount of withholding tax paid by REITs and what percentage of this was refunded to foreign investors.

I suspect the answer to both would be "quite a lot" which makes you wonder why we have such a REIT favourable regime? And if the answer to the "why" question is to encourage investment in rental property, then surely logic would dictate similar encouragement for Irish residents. Wouldn't it?
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I think that REITs are taxed in this manner everywhere. They were created in the US as far as I know with this tax treatment and spread, and the structure was copied elsewhere. So I don't think we've done anything special or different. & I think for this reason it might not be as easy to change the tax treatment as SF make out.
 
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Right Winger said:
It would be very interesting to see statistics on all of this, if for no other reason than to facilitate an informed debate.
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To what end though? Companies or individuals basing themselves in tax havens to avail of favourable treatment is nothing new, and is not limited to institutional landlords. Any debate on that is off-topic here.
 
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The topic is "Tax treatment of landlords has to be revisited." So, taking it in steps:
1. It is contended that ordinary landlords of residential property are excessively taxed and this tax should be reduced.
2. Such a reduction would be justified by a policy objective of building more residential property, given the current shortage of same.
3. This policy objective was stated to be behind the introduction of REITs a decade ago.
4. It appears to have worked insofar as REITs have entered the Irish market in significant quantum.
5. Logically, a similar approach to reducing the burden on Irish-resident private landlords would be equally justified on policy considerations.

and finally,

6. Putting hard data on the above would surely facilitate a more informed debate.
 
Here in Germany the dividens from REITs are not subject to income tax, only withholding tax (Abgeltungssteuer) as they are legally considered to be funds like any other ETF or managed fund or whatever and it maxes out at an effective ca. 27%. The 25% Irish withholding tax will be credited against this of course as we have a comprehensive DTA with Ireland, so if I invest in Irish rental property through a REIT I will pay no more than that 27% tax on the dividends in total. If I (as I do) directly invest in Irish rental property I am subject to Irish income tax and USC (though not PRSI as I am non-resident). Once you have more than a couple of average properties in Dublin the advantages of being able to invest in these properties through a REIT rather than directly investing in them should be obvious. For an Irish resident landlord it's even worse as you have to pay 4% PRSI on the income (yet get no real benefits for it if you are already paying class A PRSI on earned income). The effective tax rate on rental income for Irish residents is often quoted at 52%, though I don't know how accurate that is but it can't be far off for anyone with other income over the 40% income tax threshold, when you stick PRSI & USC on top. That's just a little under twice the tax a non-resident living in the "tax haven" of Germany would pay on the same properties when directly invested.

It's kind of ironic that the small time landlord is particularly demonised by certain elements while these guys are paying over half the rental profits in tax to the state while institutional investors using REITs as a vehicle can pay roughly half that tax depending on tax residence. They don't charge lower rents though lol.
 
murphaph1 said:
It's kind of ironic that the small time landlord is particularly demonised by certain elements while these guys are paying over half the rental profits in tax to the state while institutional investors using REITs as a vehicle can pay roughly half that tax depending on tax residence.
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Small time landlords are perfectly free to relocate to a lower tax base jurisdiction if they so choose.
 
Leo said:
Small time landlords are perfectly free to relocate to a lower tax base jurisdiction if they so choose.
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The only benefit of moving jurisdiction would be the 4% PRSI saving. Small time non-resident landlords pay the same tax as resident landlords apart from that.
 
Leo said:
Small time landlords are perfectly free to relocate to a lower tax base jurisdiction if they so choose.
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Yes, true, but.....
If you adopt that line of argument, then ANY proposal for ANY reform of the Irish tax system can be met with the similar objection that the proposers "are perfectly free to relocate to a lower tax base jurisdiction if they so choose."
Which would mean that there's no point in advocating for any reform of the tax system whatsoever. Which is hardly a good thing?
 
Leo said:
My point was you were suggesting that was an avenue open only to institutional landlords.
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Not quite, and certainly not the nub of what I meant. Apologies if I wasn't quite clear on that.

Let's recap. Small time Irish resident landlords are treated very harshly in the Irish tax system. They are further demonized in the court of public opinion, but that's a different matter although it does create a climate where the harsh tax treatment becomes acceptable or even popular.)
These small time landlords are treated far worse than institutional REITs or non-resident small timers. So yeah, they could improve their situation somewhat by relocating to a low tax jurisdiction as you suggest and/or incorporating as a REIT when they go. But seriously, is that the best solution we can think up? Wouldn't it be far far better to actually reform the Irish tax system rather than (somewhat blithely and flippantly, it seems to me) suggesting it can be avoided by moving abroad?

A concept which as I said could be deployed to argue against any reform of the Irish tax system.
 
Leo said:
Are you suggesting the beneficial owners don't pay any income tax?
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Sigh.:rolleyes: This has been amply covered already. The beneficial owners pay tax in whatever jurisdiction they are tax resident. Obviously it makes more sense to be a shareholder in an Irish REIT if you're resident in a low tax jurisdiction. So REIT shareholders, acting rationally, will not tend to be tax-resident in Ireland.
The net result is that REITs are effectively a vehicle by which non-resident investors get a very low tax rate on Irish residential property. Which is in abject contrast with the tax treatment applied to small time Irish landlords. Which, etc, etc, brings me back to the desirability of reform if we want to encourage investment in Irish residential property. Which was the claimed policy justification for the introduction of REITs a decade ago. Which is inconsistent with the treatment of Irish landlords. Etc, etc.......
 
Leo said:
Are you suggesting the beneficial owners don't pay any income tax?
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This is the one myth that can't be killed.

The tax framework for REITs is designed so that it is broadly similar to how an individual would be treated in the circumstances.

REITs allow for lots of smaller investors to come together and also to take advantage of economies of scale from professional management.
 
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