‘I never knew you could buy a property in my Pension.’ That’s a conversation I had recently with a client. However, he was pleasantly surprised to learn that you can buy a property in your Pension. There are a few important aspects you would need to be aware of before buying a property in your Pension.
First Step – Set-up the Right Structure
Check to see if you have the capacity to set-up the right structure. There are two main ways you can buy a property through your Pension in Ireland. You can buy it through an Insured arrangement (Standard Life are the only Insurance company to provide this facility) or you could buy it through a Self-administered Pension through one of the trustee companies. (Wealth Options, ITC, etc) These two types of Pension Structure suit those that are self-employed as they have the flexibility to fund the Pension from their business. Unfortunately for employees it’s more difficult to buy a property as their employer would have to allow access to a special Pension Structure. Also, there is less flexibility in funding the Pension.
Second Step – Be aware of the ‘arm’s length rule’ and the conditions
- All purchases, sales, or lettings must be on an arm’s length basis. You can’t buy or rent your property from a connected party which would include your employer, family members or friends
- Purchase of a property with a view to development is prohibited.
- Any borrowing must comply with applicable revenue rules
Because of the generous tax exemptions that exist within a Pension fund, Investors can often get a much better returns than they would if they owned the property personally. These tax exemptions are not to be underestimated, as there is no Income Tax, PRSI or USC on rental Income and no Capital Gains Tax liability on disposal if the property is held in the Pension Fund.
Residential and Commercial Property can be purchased through a Self-administered Pension
No tax payable in respect of rental income received from the property and this is paid directly into your Pension Fund
No Capital gains tax if you sell the property in the future. It is also worth noting you don’t have to sell the property once you reach retirement age. You can hold onto it and retire and transfer it into an ARF.
Any expenses incurred by the property e.g. solicitor’s cost, auctioneer fees, refurbishment costs can be paid directly by the Pension Fund
More than one personal can pool their Pension assets together to purchase a property (2 Directors, 2 Friends, or 2 Spouses)
You can use the rental income to invest in a Fund
Some of the banks will lend to your Pension, generally they will lend up to 50% of the purchase price
Owning a property though your Pension may sound very attractive. However, remember Irish property is one asset class. I would always suggest diversifying your Pension as much as possible. If you have any questions on setting up a Self-administered Pension Scheme, please get in touch.
This blog does not constitute financial advice, always seek professional guidance when setting up a Pension.