The Finance Bill 2019 (the Bill), which was published on 17 October 2019, has significant and wide-reaching property related tax changes. This article focuses on the changes which impact in the investment funds sphere.

Stamp duty

Schemes of arrangement have long been used in the acquisition of Irish domiciled companies such as real estate companies and are also used to take companies private. This includes Irish Real Estate Investment Trusts (REITs). The Bill has introduced a new anti-avoidance rule by inserting a new provision into the Stamp Duties Consolidation Act, 1999. The net result of this new provision is that stamp duty of 1% will be applied in court approved schemes of arrangement meaning the acquirer of an Irish company or REIT will pay stamp duty at 1% of the consideration paid to the shareholders in the target company for the cancellation of their shares in the company.

While residential property stamp duty remained untouched by the Bill, this was not the case for commercial property. Stamp duty on commercial property transactions will increase from 6% to 7.5%. There was another implication to this announcement as this tax increase will also increase the stamp duty rate on sales of shares in certain entities or companies which derive over 50% of their value from Irish commercial property.


REITs are recognised as important vehicles for property investment in over 30 jurisdictions throughout the world. Investors can directly hold property through shares, making them a tax-efficient investment with the benefit of transparency and liquidity from their flotation on a regulated stock exchange. By buying these shares in a REIT an investor can get access to large scale property enterprises as well as commercial sites for development purposes.

The Bill proposes some important changes affecting REITs which may or may not impact on their future viability and marketability:

  • a company that elects not to be a REIT for tax purposes will no longer be able to rebase their assets unless the REIT has been in existence for over 15 years. The direct effect of this change may make it less attractive to acquire an Irish REIT, given that the purchaser may inherit a latent tax liability within the REIT company.
  • Dividends from REITs which comprise the proceeds of property disposals will be treated as ordinary distributions. They will be subject to dividend withholding tax at the new rate of 25%. The usual exemptions from dividend withholding tax for non-residents will not apply.
  • REITs will be subject to tax where they claim deductions for payments which are not wholly or exclusively for the purposes of their property rental business. This provision is intended to prevent REITs from making excessive payments for advisory and other services which are unconnected with their core intended business.


Irish Real Estate Funds (IREFs), investing in Irish property and related assets, are also subject to specific measures. As per the changes set out in the Bill, IREFs will be subject to tax at 20% on certain deemed income. The legislation makes provision for deemed income to arise, if

  • the IREF's leverage exceeds 50% of its original asset costs,
  • the IREF's interest costs exceeds four times adjusted profits, or
  • the IREF claims deductions for payments which are not wholly and exclusively for the purposes of its business.

While there may be amendments to the Bill before it is signed into law by the President by the end of December 2019, there is market concern over the impact on IREF's undertaking development activity. The leverage threshold and interest restrictions do not seek to distinguish between third party debt and related party borrowing.

The Bill goes further with other obligations which deem income to arise where there are distributions to certain persons holding over 10% of the units in the IREF. This replaces a provision which previously deemed such distributions to be rental income and again like the other mooted changes, debate and discussion will no doubt continue for the next few months.