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Invest in property – Tax efficiently

A key feature of self-administered pension arrangements is the member’s ability to identify and acquire specific property investments. Provided pension rules are satisfied, the member can use their own market knowledge and contacts to access unique opportunities and potentially enhance their retirement assets.

Purchasing property through a pension

Many pension investors have large cash funds available either in their pension or in their company that could be contributed to their pension scheme. With interest rates being so low, the returns that these funds are generating are minimal. In contrast, according to property website, the average rental rates in Ireland increased by 10.4 per cent in 2017 [Source: Daft Irish Rental Price Report Q4 2017].

The flexibility of a self-administered pension arrangement means that, provided pension rules are satisfied, the pension investor can choose the property they wish to purchase. Both residential and commercial property can be acquired. For commercial properties, the property fund can even be registered for VAT if required.

Utilising your pension

Where a property is acquired through a pension vehicle, the rental income is not subject to income tax nor will Capital Gains Tax be payable on the sale of the property.

In years gone by it had been difficult to obtain gearing for property held within a pension but more recently borrowing for residential and commercial property has been made available by a number of lenders. Pension borrowing is always granted on a limited recourse basis, meaning that the lender cannot pursue the assets of the trustees or the pension scheme member in case of default.

Understanding property

The below example outlines the difference in the returns of holding a property for 15 years in your own name versus in your pension.

Property Value€200,000.00
Growth Rate – Property5%
Growth Rate – Investments5%
Rental Yield6%
Income Tax Rate53%
Inheritance Tax Rate33%
Interest Repayment€5,590.00
 Property Value
Year 1€200,000.00
Value at End – Personally394,844.36
 Property Value
Year 1€200,000.00
Value at End – Pension631,749.84
Difference: €236,905.48 – 60% Gain via Pension

It is also possible for investors to pool their resources to purchase one or more properties and this is proving to be very popular. In particular small family groups and business colleagues tend to avail of this option.

On retirement, the property can be transferred in specie to an Approved Retirement Fund (ARF) and can continue to generate a post retirement income.

Why self-administered?
  • Income tax relief on employee and employer contributions remains at the higher rate of tax.
  • All income and gains within pension schemes remain exempt from income tax and capital gains tax.
  • On retirement, an individual may take 25 per cent of the value of the pension fund as a lump sum, of which €200,000 is tax free.
  • The individual has control over every aspect of their pension affairs including all investment and contribution decisions.
  • The individual has access to a broad range of investment types in a transparent, flexible, secure, cost efficient environment.

Please contact us today to find out how you can use your pension to invest in property. Call us on 067-57057.

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