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Can your pension buy a property in Ireland? Yes, but there are important rules about what type of pension can invest in property, how the property can be used, and what happens when you retire or die.

For many people, the idea of using a pension to invest in Irish property is attractive. Instead of holding all of your retirement savings in shares, funds or cash, you may be able to use an eligible pension structure to invest in a property and potentially receive rental income within the pension.

You can also avail of powerful tax reliefs such as:

1. Tax-free rental income directly into your fund.

2. No Capital Gains Tax (CGT) on any profit made during sale.

3. Tax relief on pension contributions made into the scheme toward property purchase.

4. On retirement, you can take 25% of the value of the pension fund as a lump sum, of which €200,000 is tax free.

Can I live in a property bought with my pension?

Unfortunately, no. This is one of the biggest misconceptions about pension property investment. A property purchased by a pension must be treated as an investment for the pension. You cannot simply use your pension to purchase a house, move into it and treat it as your retirement home.

Revenue's pension investment rules place restrictions on property being acquired for personal or connected use. The property can’t be used by or rented to you, or anyone connected to you - such as a family member. You cannot buy a property with a view to ‘flipping’ it – that is, for renovation and a quick resale. You must be buying the property as a long-term investment.

Can my pension buy a property I already own?

Again no, this is something that would be restricted by Revenue Rules.

A common idea is: "I already own an investment property. Why can't my pension buy it from me and give me the cash?" This raises significant connected-party and arm's-length issues.

Revenue's guidance states that pension property investments are subject to conditions including the vendor being at arm's length from the scheme and the disposal of the property being on an arm's-length basis. Revenue also restricts certain property acquisitions involving the employer, directors and associated companies.

The important principle is that your pension cannot simply be used as a vehicle to move your existing personal assets into a tax-advantaged pension arrangement.

Can I buy a commercial property with my pension?

Yes, commercial property can potentially be held as a pension investment, subject to the rules of the pension arrangement and Revenue requirements.

What pension can buy property in Ireland?

You can generally buy property through:

• Approved Retirements Funds (ARFs)

• Personal Retirement Savings Accounts (PRSAs)

• Buy out Bonds (BOBs)

• or a combination of these pension schemes, depending on the provider.

Note that there are two types of PRSAs – a Standard PRSA and a non-Standard PRSA. Should you wish to purchase property directly through your PRSA, you would need to do so through a Non-Standard PRSA. You would also need to have your PRSA with a provider which facilitates such direct property investment. There are a number of providers who offer Non-Standard PRSAs which allow you to buy property directly.

How much do I need in my pension to buy a property?

Generally the amount of money you need in your pension to buy a property will depend on the property you have in mind.

You usually can’t use all of the money in your pension fund to buy a property, you must leave sufficient liquidity in your pension scheme to cover costs related to the property and pension fund after the purchase. You should also leave enough money in your pension fund to allow you to spread your investment risk across more than one asset class.

Associated costs include:

• Stamp duty

• Solicitor fees

• Insurance

• Local Property Tax

• Property Management Fees

• Service charges

Our ITC Pension Property Calculator can help you check if there are sufficient funds in your scheme to purchase your desired property.

Can a pension borrow to buy property?

In certain circumstances, borrowing can be used to help with the purchase of property that may be valued higher than the available funds in your pension fund.

If borrowing for property through a pension scheme, you will need to ensure you’ll have enough funds to meet the repayments and that the loan can be paid in full before retirement. With our Pension Mortgage Calculator you can check if you have sufficient funds in your scheme to purchase your desired property and meet required loan repayments.

Note that borrowing is not permitted for ARFs and banks who are providing lending to pensions have limits on the amounts that can be borrowed along with other criteria such as location of property and expected rental yield.

Do I need to sell my pension property as soon as I retire?

No, not necessarily. Another common misconception is that retirement automatically means the property must immediately be sold.

Where property is held as an investment within an appropriate pension structure, it can potentially remain invested after you retire. The property may continue to generate rental income, while the pension itself can be used to provide retirement benefits.

For example, an Approved Retirement Fund (ARF) is a post-retirement investment vehicle into which eligible pension benefits can be transferred. Funds in an ARF remain the property of the individual and can be withdrawn, subject to the applicable rules. This means retirement does not necessarily require you to sell your pension property simply because you have stopped working.

However, the structure holding the property and the rules governing your particular pension are important. With an ITC pension property, the property can pass to an ITC ARF without incurring any fees.

What happens to the property in my pension when I die?

The answer depends on the pension arrangement and the beneficiary and their relationship to you. The property does not simply become a personally owned house belonging to your family because it was held within your pension. Instead, the pension assets are dealt with under the rules applying to that pension arrangement.

With an ITC pension property for example, where the property is held in an ARF, this ownership can transferred seamlessly to an ITC ARF in the spouses name, without incurring any conveyancing fees. This makes estate planning an important part of pension property planning.

Is buying property through a pension tax-free?

This is another area where the terminology can be misleading. Property held within a qualifying pension arrangement can benefit from favourable tax treatment. That does not, however, mean the entire investment is tax-free from beginning to end.

There can still be taxes and costs associated with buying, owning, financing, selling and ultimately taking benefits from a pension. For example, Stamp Duty applies to property transactions, with different rates applying to residential and non-residential property.

The tax treatment of the pension when benefits are eventually taken also needs to be considered.

Final takeaway

Pension property investment can be a powerful retirement-planning tool, but it is not a loophole for buying your own home with tax-relieved pension money.

If you're considering buying property through a pension, the best starting point is to establish whether your pension permits property investment, what restrictions apply, and whether the proposed property makes sense as part of your long-term retirement strategy.

For further information, please speak to your financial advisor or email justask@independent-trustee.com.

Fiona Harris
ITC Marketing Manager