On the Money - Can I buy property with my pension fund?

Barry Kerr


Barry Kerr

On the Money -  Can I buy property with my pension fund?

The answer is yes you can

Given the strong appetite among Irish Investors for property, it’s no surprise that this is one of the most common questions we get asked - can I buy a property with my pension fund?
The answer is yes you can. It’s important to fully understand all of the rules and restrictions which apply. Because of the generous tax exemptions that exist within a pension fund, investors will always get a much better return than they would if they owned the property personally. There is no income tax, PRSI or USC due on rental income or no capital gains tax (CGT) liability on disposal, if the property is held within a pension fund.
Firstly, you need to have sufficient value built up in your pension fund. You then set up a self-administered pension structure. This gives you more freedom in the type of assets you’re allowed to invest in. Generally, the minimum amount to make it viable is about €100,000. This may be a transfer from another pension or employer or a combination of a number of pension funds accumulated over the years.
There may be a one off set-up fee. In addition, self-administered pension funds require the services of a trustee. The roles of the trustee is to provide an annual return to revenue. This will incur a further annual trustee fee which is reflected as a % of the overall fund. This fee is generally lower than a traditional pension annual management fee.
A recent point to note is a new European Directive on the activities and supervision of Institutions for Occupational Retirement Provision (IORPS II). This was introduced on January 13, 2019. It should transpose into Irish Law at some stage in the next five months. The impact of this directive will be to get rid of the derogation currently in place under IROPS I which allows small self-administered pension funds great latitude in the type of assets they can invest in. It has been signalled by the DEASP that this derogation will no longer be allowed.
Our understanding is that the new legislation is not retrospective and will not impact existing SSAP pensions.  This will restrict SSAP choice and flexibility with regards to how a SSAP is invested and in particular around property. The APTI (Association of Pension Trustees of Ireland) is lobbying intensely to retain the derogation. At this point however the outcome is very uncertain. As soon as we have a better understanding and a further update we will publish the outcome. 
Some points to remember in relation to property investment:
Once you’ve decided on the property that you wish to purchase you will be considered a cash buyer as you are not borrowing to purchase a property.
Both residential and commercial property can be purchase.
Purchases of property or land with a view to development and immediate disposal is prohibited.
There is no tax payable in respect of the rental income received from the property and this is paid tax free directly into your pension fund. There is no capital gains tax if you sell the property in the future.
You do not have to sell the property once you reach retirement. You can if you wish hold onto the property in A Self –Administered ARF after you retire and use it to generate a post retirement income. Any further contributions you make into your pension fund still receive tax relief at the higher tax rate (subject to Revenue max funding rules).
Any expenses incurred on the purchase of the property or carrying out a refurbishment or fitting out of the property can be paid directly out of the pension fund. Also other ongoing expenses such as management fees and property tax can also be paid directly by your pension fund.
At retirement 25% of the total value of your pension assets can be taken as a tax free lump sum subject to the max of €200,000. It may also be possible to transfer the property from a self- administered pension to a self-administered ARF and thus continue to generate a post retirement income.
As per Revenue rules, the property must be held at arms-length’.
That is your pension fund cannot buy your family home, nor can the fund buy a property for your own personal or business use or by any connected parties.
Always seek independent financial advice before making any long term Investment decisions.