Purchasing a property with your pension

29 April 2019

We have received some enquiries from clients recently about using the funds built up in their pensions to purchase a property, such as a house or apartment. This can be an excellent way of accessing growth in property values as the sale of an investment property from within a pension is not liable for Capital Gains Tax, and any rental income received while it is owned is not taxable either.

I am not an Estate Agent, but there seems to be good value available in rental quality property at the moment, particularly in Donegal. Obviously many people would see this as a good long term investment opportunity suitable for building a retirement nest-egg, but they may not have access to immediate funds or bank financing to make the purchase. Depending on what kind of pension arrangements you have in place you may be able to finance the purchase using your retirement fund.

There are certain “Urban Myths” surrounding this type of transaction. A point that people often do not realise when they consider this option is that it is not them who will own the property, it is their pension. Also, because there are tax advantages over purchasing the property in a person’s own name, there are always going to be Revenue restrictions involved.

Another common misconception is that an individual can use their pension fund to buy, for example, a student flat for their son or daughter to occupy rent-free while at college, a holiday home for themselves in their favourite seaside town, or even a city centre apartment to save commuting for work. The first and main Revenue stipulation is that all property transactions must be on an “arms-length” basis, meaning that neither themselves nor anyone connected to them can rent, use or occupy the property, or buy it when it needs to be sold. This rule eradicates what many people perceive as a huge potential advantage.

The pension company will usually nominate their own solicitor and property management company to look after the purchase and future upkeep. The legal and maintenance costs will be paid from within the pension fund, and the rent must be paid into the fund. There will usually have to be enough money in the pension plan at outset to cover the full purchase, plus stamp duty and legal costs. Alternatively your pension may be able to borrow a portion of the purchase price through certain providers.

Of course there is a liquidity risk involved too. As the time approaches for accessing the retirement benefits of the pension, the property may have to be sold at whatever price the market dictates at that time. This may be true for private purchasers also, however they would have more options in regard to holding out for a better price.

There are many conditions to fulfil with this kind of transaction, and not every kind of pension plan can be used, but you genuinely want to purchase a property as part of your pensions investment strategy it could prove to be a very worthwhile opportunity. Your Qualified Financial Advisor can help you decide if it is suitable for you.

Sean Sweeney, QFA RPA is a Qualified Financial Advisor and Retirement Planning Advisor. You can contact him through John F. Loughrey Financial Services by telephone on 074-9124002 or by email on sean@jfl.ie

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