Latest News from Pension Property

Irish house price growth has been strong in recent years. House prices in Ireland grew at an average annual rate of 7.5pc in April, according to the latest figures from the CSO. The latest house price report from the property website, Daft.ie, found that house price inflation is at its highest point in ten years, with the average listed house price nationally rising by 12.3pc in the year to March 2025. Rental yields – a key metric for evaluating the profitability of an investment property - are also strong. The latest rental report from Daft.ie shows that the average rental yield ranges from 5.2pc (for a five-bed house) to 8.8pc (for a one-bed apt) .

Against a backdrop such as this, for some people the idea of buying property through their pension is appealing. Of course, property values can go down as well as up and this is something to be cognisant of if considering buying property through your pension, as it is your retirement that you would be aiming to provide for by doing so.

Ultimately, anyone can buy property through a pension as long as they do so through a specific product and provider and have sufficient funds in their pension.

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.

If buying a property through your pension, you can choose the property you wish to buy, whether it is residential or commercial. The amount of money you need in your pension in order 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 usually leave sufficient liquidity in your pension scheme to cover costs related to the properties and pension fund after the purchase.

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. It is crucial that you get impartial financial advice if considering buying property through your pension, including if borrowing to fund such a property purchase.

Advantages Over Buying Property Outright

The main advantages of purchasing property through a pension scheme are tax-related. Any rental income earned from property is exempt from income tax (as long as the scheme has been approved by Revenue as a tax exempt one and is registered with the Residential Tenancies Board). Similarly, any profit earned from the sale of properties is exempt from Capital Gains Tax (CGT). Furthermore, if buying property through a pension, you can get pensions tax relief on your pension contributions into the scheme.

The income tax exemption on rental income would not be available if you bought an investment property outside a pension scheme with a view to earning rental income from it in retirement.

Furthermore, unlike property bought through a pension scheme, you cannot claim pensions tax relief on the money used to purchase a property outright personally.

To illustrate the potential financial advantage of buying a property through a pension scheme rather than outright, let’s take a regional property that is on the market for €200,000. Let’s assume that the market value of that property increases by 7.5pc a year – and that the property can deliver a rental yield of 6pc per annum. Let’s also assume that the individual buying the property is paying 52pc tax (income tax, PRSI & the Universal Social Charge) on their income, that the property is held for 15 years, and that the CGT rate is 33pc.

If the property is purchased through a pension scheme, no tax is paid on the rental income and when sold, the sale doesn’t incur CGT. We estimate that the value returned to the pension over the period (including rent earned over the 15 years and the sale proceeds after the property is sold) would be in the region of €985,000 in this case.

However, if the property is bought outright, rather than through a pension scheme, the value returned to the purchaser after 15 years (including the rent earned over the 15 years and the sale proceeds after the property is sold) would be in the region of €524,000 . This means that the property would generate an additional €461,000 in this case for the individual if bought and sold through a pension scheme, rather than if bought and sold outright. The difference is largely due to the income tax liability on rental income earned on the property that was bought outright (rather than through the pension scheme) and the gain in the growth of the value of the property being subject to CGT.

As is always the case with investments, due diligence is important if considering buying or investing in property through your pension. Get impartial advice before buying property through your pension scheme. It is crucial to understand the costs and investment risks of buying or investing in property through a pension, as well as the tax rules. If your property investment were to go wrong, it could take a substantial chunk out of your pension.

Glenn Gaughran, Head of ITC Business Development & Marketing.