Pension Property and Co-ownership Agreements
One of the key features of ITC self-administered pensions is the ability to invest in property, be it residential or commercial. Some of the main benefits are that 100% of the employer pension contributions are allowable against tax, there is no Capital Gains Tax payable on property growth, and no Income Tax on rental income from the property. Also, If required, your ITC pension has the ability to borrow to purchase a property within certain parameters.
In addition, when you come to retire your ITC self-administered scheme, the property can move seamlessly into an Approved Retirement Fund (ARF). Potentially the rental income coming into the ARF can provide a better return than pension annuities, and there is no personal annual income tax return required.
There is also the ability for two or more ITC self-administered pension schemes to combine together to purchase property with or without lending. This can enable pension investors to come together to invest in pension assets that they may not otherwise be able to afford. In simple terms it allows people to join their resources. Examples of this would be spouses, family groups and business associates. There is great flexibility and parties can invest in any share splits e.g., 20:40:40 but it can be any combination - it really doesn't matter which is what makes it so flexible.
Lending
If done without lending, clients preserve their rental income. They won’t need bank finance or have to use the rent to pay off the loan. If lending is required, it is non-recourse and the lender’s recourse in the event of default is limited to the property.
Held in a Unit Trust
Each ITC scheme is structured though an exempt unit trust and every property has its own separate unit trust, which facilitates the segregation of assets with individual bank accounts for each property. This allows for monitoring of individual performance of each asset e.g. if you have a number of properties you can monitor their individual performance and bank accounts through the ITC Client Portal and App.
You can reduce VAT leakage by just registering the specific trust rather than the whole scheme i.e. if you have commercial property you register that one trust, and it doesn’t affect the rest of your scheme. It is also worth noting that, typically, investments in unit trusts are easily moved from a pre-retirement vehicle to a post-retirement vehicle with no legal costs, tax or stamp duty.
Privacy
Anonymity is very important to many clients particularly when they are buying locally. Nobody knows if it is them buying it and for how much. This can be especially important for high-net-worth clients and clients outside of the cities. A review of the property register will only show ITC as the registered owner of the property.
Investment Splits Can Change Over Time
The investment splits can change over time and are based on investment/divestment from the trust by each investor. For example:
John and Mary go in today and buy a property for €200,000, 50% each or €100,000. In a years’ time they have decided they should add an extension, an extra 2 bedrooms and massively increase the rental income. Mary doesn’t have any available funds in her pension scheme, but John does so they agree to move forward with John putting the funds in. John will now have more units than Mary does in the Trust. Say John puts in an extra €50,000, then he'll have €50,000 of extra units based on the unit price at the time.
Similarly, if one unitholder needs funds for the likes of an ARF drawdown, it is possible for one or all unitholders to withdraw funds and their unit holdings will adjust accordingly.
Easy Entry and Exit
This structure can also facilitate easy entry and exit. The people who start this arrangement can be completely different to those who finish it, whether on the transfer of assets under death or new investments from other pension investors known to them. These changes can all be tracked through our ITC Client Portal and App.
Combining resources from a number pension schemes can facilitate efficient retirement planning, financial planning and increase the available asset pool, with or without lending.
For further information, please speak to your financial advisor or email justask@independent-trustee.com.