Why should you consider buying property through your Pension?
Tax Relief (at marginal income tax rate - up to 40%) on Pension Contributions
- You can use your existing Pension Fund(s).
- It offers the potential to benefit from both rental income and capital appreciation.
- No tax leakage on rental income. Compare this to owning property personally where you are exposed to income tax at marginal rate (up to 40%) , PAYE (4%) and USC (up to 8%)
- No capital gains tax (CGT) on sale. If owned personally, you are exposed to Capital Gains Tax at 33%.
- You can choose the property - residential or commercial.
- At retirement, you can extract 25% of your Pension Fund as a Tax Free Lump Sum Unless you plan on selling the property, the cash / liquidity for this will come from the rental Income, future pension contributions or a combination of both. It is possible to transfer the property from your pre-retirement pension fund into your post-Retirement Fund (ARF) by way of an in-specie transfer so no actual sale / stamp duty etc.
- If you don't have sufficient existing pension fund(s) yourself, it is possible for more than one investor (for example Spouses, or Co-Directors) to effectively pool their pension funds under a Co-Ownership Agreement.
- Note that you do need to have existing Pension Fund(s) of €250k+ (whether individually or jointly with Spouse / Partner)
Some Revenue Rules in relation to Pensions & Property
- Purchases, Sales & Lettings must be on an arms-length basis so no connected parties. You can't rent the property to your Business, your children / other family members etc can't be tenants.
- Property Development / Trading is prohibited.
- The Pension should maintain sufficient liquidity so you can't invest all your Pension Fund(s) into Property. Typically circa. 20% - 30% should be kept liquid in Funds / Shares / ETF's or on Deposit. This liquidity is required to cover the following: property related costs (expected and unexpected), retirement lump sum extraction and income in retirement.
- We would recommend not using a mortgage if you have sufficient funds. However if you do need / wish to do so, the Maximum Mortgage term is 15 years and it must be on a full Capital & Interest basis and be fully paid off by your chosen Retirement date.
I'm interested - How do I do this?
The key point to understand is that it will be your Pension Fund (and not you personally) who will be buying the Property. If you use a mortgage, the pension fund will be the borrower, not you and there will be no recourse to you personally.
Therefore, the first step is to set up the appropriate pension vehicle that will facilitate property acquisition. This will be a Self-Administered / Directed Pension rather than a traditional pension so instead of one of the Insurance Companies / Banks you will be using a Pensioneer Trustee Firm. These are approved by Revenue for this role and essentially they make sure you follow Revenue Pension rules. Of course they charge a fee for this (usually to the pension Fund) but no different than the Insurance Companies / Banks who do likewise.
You will need to transfer your existing pensions to your new Self-Administered / Directed Pension so that you accumulate sufficient funds to enable you to purchase your chosen property. Incidentally you are not restricted to Property, you can also invest in Deposits, Funds, ETF's etc so you actually have a much wider range of options as you are no longer restricted to the Funds offered by a particular Insurance Company / Bank.
Just as when you purchase property personally, you will be dealing with estate agents, solicitors etc when you are buying / selling. All costs will be paid by your Pension Fund and all income (rent etc) will go into your Pension Fund.
Why Blackthorn Capital?
We have extensive experience in acquiring and selling property through Pension Funds. In the past, we have acted as an external Fund Manager for Irish Life (previously Canada Life), and also have been a Pensioneer Trustee. We have been involved in over 300 Residential Property transactions, and a number of very large Commercial Property transactions (up to €100m transaction size). The total value of these transactions is in excess of €250m.
We deal with a wide range of Pension Providers and will assist you in the process from start to finish.
- We will provide advice on your overall financial situation and whether or not investing in property is viable in the circumstances.
- We will advise which Pension Provider best suits what you would like to do.
- We will assist you in consolidating / transferring existing Pensions to your chosen Provider.
- We will assist you in raising Mortgage Finance if required.
- We will assist you throughout the Property acquisition process.
- We will provide ongoing Pension advice and support thereafter whether in relation to future contributions, accessing benefits etc.