Why consider buying property in a pension?
Quest Capital Trustees located in Dublin, Ireland operate Self Directed Pensions for clients facilitating property investment via their pension.
Buying a property in a pension is a very tax efficient means of generating rental income and building up a steady source of income to the pension scheme and in retirement.
Some of the tax benefits of buying a property in a pension scheme;
- The funds used to buy the property are not taxed, e.g. to buy a €200K property in a pension scheme requires a pension contribution of €200K (plus costs), whereas to buy the same property personally would require over €400K before income tax (assuming marginal rate income tax).
- Rental income is not taxed in the pension scheme.
- No requirement for income tax returns on the property.
- Rental income can be a good long-term source of income in retirement.
- The is no Capital Gains Tax on the ultimate sale of the property.
- The property can be transferred to an Approved Retirement Fund at retirement.
So how do you buy a property in a pension?
The procedure is relatively simple;
- Identify the property you want to buy
- Establish the pension (SAPS, PRB, ARF) if not already done
- Ensure you have sufficient funds in the pension to buy the property, if not a contribution to the pension will be required.
- Assuming you are the successful bidder notify us of your solicitor (or you can use one of ours)
- Complete a small amount of paperwork for us
- Contracts will be issued to the solicitor, we will liaise with the solicitor to ensure all moves along
- The solicitor will close the sale and you will have a property in your pension
- Appoint a letting agent to let the property
Things to be aware of when buying a property in a pension;
- The pension is exempt from income tax and capital gains tax. It is not exempt from VAT. So in the case of a new build VAT will typically be charged and the pension will have to pay it. (tax advice should be sought in the case of a commercial property purchase and the VAT implications of same).
- Stamp Duty will also be payable at the applicable rate on the purchase.
- Legal fees and outlays will also need to factored in to the cost, to include the likes of searches, PRA registration etc.
- A residential letting will need to be registered with the Residential Tenancies Board.
- Although not obligatory it is recommended that a property agent be appointed.
IORP II Directive
The Institutions for Occupational Retirement Provision II Directive (IORP II) limits how much of a self-administered pension scheme (SAPS) can invest in ‘unregulated’ assets such as property. Advice should be sought from your financial advisor regarding IORP II if you are considering buying a property in a SAPS. The Directive does not however apply to ARFs or PRBs.
For more details please contact us.