Investing in Property via a Pension

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;

  1. Identify the property you want to buy
  2. Establish the pension (SAPS, PRB, ARF) if not already done
  3. Ensure you have sufficient funds in the pension to buy the property, if not a contribution to the pension will be required.
  4. Assuming you are the successful bidder notify us of your solicitor (or you can use one of ours)
  5. Complete a small amount of paperwork for us
  6. Contracts will be issued to the solicitor, we will liaise with the solicitor to ensure all moves along
  7. The solicitor will close the sale and you will have a property in your pension
  8. 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.

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