Purchasing Property through your Pension

Purchasing Property through your Pension

Self-administered pensions allow pension investors to purchase properties via their pensions. Properties held fall under the categories of residential, commercial, industrial, or may be a combination of each of these held within syndicated pension funds.

  • Is it appropriate for everyone, No.
  • Are their restrictions, Yes.
  • Is it complex, Just a little.
  • Are their significant tax benefits, Yes.

Benefits of Property Pension Investing:

  • As with any pension fund, the contributor receives income tax relief on contributions made into their pension and employers’ contributions are also deducted for corporation tax relief.  
  • There is no income tax on the rental income and no Capital Gains Tax (CGT) on the eventual sale of the property.
  • Upon retirement, you can take 25% of the value of the pension fund as a lump sum, of which €200,000 is tax free.
  • The property can transfer in specie to a self-administered ARF and the rental income can contribute to your income in retirement (drawdowns are subject to PAYE).

How to purchase a property through your pension: Firstly, contact Eolas Money to discuss the appropriateness of buying a property via your pension and to discuss your current pension arrangements. For anyone considering a property pension purchase, we recommend that you have a minimum pension fund of €250,000 before you consider this option as your pension fund has to have sufficient funds to cover all fees associated with the property purchase as well as being able to fund at least 50% of the property purchase where borrowing is required.  

Restrictions of buying a property through your pension?

While a very attractive option for some pension investors, Revenue have imposed some restrictions for those considering this option as follows:

  • The vendor must not be related to you, your employer, it’s directors and associated companies.
  • The property cannot be sold or let to relatives, your employer or its directors and associated companies.
  • Personal use of the property is prohibited.
  • The development of a property with a view to its disposal is not allowed.

Advantages of buying a property through your pension.

  • Generous tax reliefs on funds to purchase property.
  • All purchase costs are met by the pension fund itself and not the individual.
  • Rental income is exempt from income tax, PRSI and USC.
  • There is no Capital Gains Tax on the sale of the property.
  • You can transfer the property in specie into your Approved Retirement Fund (ARF) at retirement so that you can retain the property into your retirement.

 Disadvantages of buying a property through your pension.

  • You cannot use the property for personal use – it must be for investment only.
  • Risk – While your pension fund can borrow to facilitate the purchase of the property, debt significantly increases the risk profile of the investment.
  • Property is an illiquid asset, and we recommend that you retain pension funds excluding your proposed pension property.

For More Information: To find out more about investing your pension in property and to determine if this is suitable and appropriate for your retirement planning, please ring on 052 6129696 or email jim@eolasmoney.ie