The level of growth of Irish property in previously ultra-tax-efficient funds slowed down in the first quarter of this year, following a clampdown on the use of such vehicles to shield real-estate from the taxman, according to the Department of Finance.

Irish fund structures had been widely used in recent years by overseas buyers of distressed property assets acquired after the real-estate bubble imploded.

Papers published this week by the department’s Tax Strategy Group cited Central Bank data showing that the increase of Irish real estate held by funds in the State slowed to 3 per cent in the first quarter, to €13.7 billion.

Quarterly growth over the past three years has typically been in the order of a double-digit percentage, and as high as 38 per cent in the three months to September 2014.

The latest statistics “demonstrate that growth in the level of Irish real estate being held by Irish funds has slowed considerably,” the department paper said.

Definitive conclusions

“Nevertheless, it is still very early to draw definitive conclusions regarding the impact of changes in the Finance Act at this stage. The Department of Finance and Revenue will continue to monitor these trends.” The Government moved in the Finance Act 2016 to impose a 20 per cent withholding tax from January on distributions from Irish property held in tax-friendly qualifying investor alternative investment funds (QIAIFs) and Irish collective asset-management vehicles (Icavs).

The clampdown targeted funds where at least 25 per cent of the assets are made up of Irish real estate.

Exemptions to the proposed laws include where beneficiaries are pension or life assurance companies, other “collective investment vehicles” or gains made from cases where funds hold on to property for at least five years.

The level of Irish property contained in such funds represents just a fraction of some €2.24 trillion of international assets – including equities and bonds – currently housed in Irish-domiciled funds. The origins of the tax-friendly nature of Irish fund structures was in order to make the State an attractive location for the domiciling and administration of global assets.