Real Estate Investment Trusts (REITS)
REITS are listed companies (quoted on a recognised exchange), holding rental investment properties. They have diverse ownership with no group controlling the entire REIT. The company is generally required to distribute at least 90% of profits to investors.
A REIT eliminates the double layer of taxation which typically hinders the holding of property through a company, with the REIT being exempt from Corporation Tax and the investor being required to pay Income Tax on the distributions to him.
There are usually limits on borrowing to protect the income stream to investors by ensuring that income is not wholly allocated to debt repayments. For small investors, the entry cost is the price of a single share. Small investors can therefore participate in the property market without mortgage borrowings or property transfer costs.
The Irish Finance Bill 2013, s39 provides for the introduction of a tax regime for REITS. Subject to meeting a number of criteria, including a requirement to distribute 85% of its property income by way of property income dividend, the regime provides for a tax exemption in respect of the income and chargeable gains of a property rental business. The REIT must derive 75 per cent of its aggregate income from the property rental business. It may carry on other “residential” business but the tax exemption applies only to the income and chargeable gains of the property rental business. The section also provides that property income dividends paid by the REIT will be subject to dividend withholding tax and will be taxable in the hands of the shareholders.