Self-administered pension arrangements allow an investor identify and acquire specific investments including property. Pension Rules allow the use of retirement funds for the purchase of real property assets in individual, co-ownership, or syndicated funds. Properties held fall under the categories of residential, commercial, industrial, or may be a combination of each of these held within syndicated funds.
Reasons to invest pension in property
- You can pick the property you wish to purchase with your pension, residential, commercial, and industrial or a combination of each can be held with the fund.
- Income tax relief on contributions made to fund the purchase are at the higher rate of tax.
- 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 (draw-downs are subject to PAYE).
- You have control over every aspect of your pension.
- If available, gearing can be used to assist in purchasing the property.
- If you are purchasing a commercial property the fund can be registered for VAT if required.
Advantages of Investing property through pension
- Generous tax reliefs on funds to purchase property.
- All purchase costs are met by the pension.
- 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 to your Approved Retirement Fund (ARF) at retirement.
Disadvantages of Investing pension in property.
- You or persons connected to you cannot use the property – it must be for investment only.
- Risk – Gearing significantly increases the risk profile of the investment.
- It is an illiquid asset.