The 8 Things You Need to Know About Pension Property – Part 1

We have seen a significant uptake in Pension Property investments recently and thought it would be useful to summarise some key points that we hope will be of interest to you:

1. What is pension property?

Single member pension schemes have the ability to invest in real estate. A key feature of a self-administered pension is that it gives the investor the ability to choose the property. Both residential and commercial property can be purchased, and borrowing can be availed of in certain circumstances. The sole purpose of the investment is to generate an income to sustain the investor in retirement.

2. Why?

Pension property allows pension investors to take control of their pension arrangement and to use their own knowledge and experience to enhance its value. Many Irish investors have a strong understanding of property which makes them comfortable investing, rather than in some of the more complex asset types. The tax benefits are significant - the rental income on the property is not subject to Income Tax and no Capital Gains Tax is paid on any gain made if the property is sold. In addition, a strong rental yield reduces the risk of depleting the pension in retirement.

3. And, why now?

As the charging of negative interest rates by banks becomes more widespread, many pension investors are eager to minimise the levels of cash in their pension schemes and investing in property provides an opportunity to make the most of their pension fund. The latest DAFT report indicates that the housing market is proving resilient with rents continuing to increase nationally and sale prices stabilising (Irish Housing Market Report - July 2020 - Daft.ie).

4. So, what are the rules?

While investment in pension property has many advantages, there are certain rules that must be complied with. The property cannot be purchased from, sold to, let to, or used by the pension investor or anyone connected with them. Pension schemes are not allowed to trade. This means that the purchase and development of property with a view to its disposal is not permitted and that Air BnB or similar recurring short-term lettings are equally not allowed. It is also necessary that the pension scheme retains liquid funds so that it can discharge all fees and liabilities.

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

Make sure to keep an eye out for part 2 coming soon!