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Buy property through pension or normally

  • 14-02-2021 12:13pm
    #1
    Registered Users Posts: 222 ✭✭ TalleyRand83


    Getting to a stage where I might be in a position to buy an investment property, question is a few people around me reckon buying through a pension is best because rental income will be tax free however I’m not 40 yet and have that whole “it’s years away until I’m pension age” and have a gut instinct to buy normally, pay the tax on rental income and be unincumbered with time limits and what I do with the property.

    Anyone got a good pro’s / con’s of each route?


Comments

  • Registered Users Posts: 1,917 ✭✭✭ bilbot79


    Getting to a stage where I might be in a position to buy an investment property, question is a few people around me reckon buying through a pension is best because rental income will be tax free however I’m not 40 yet and have that whole “it’s years away until I’m pension age” and have a gut instinct to buy normally, pay the tax on rental income and be unincumbered with time limits and what I do with the property.

    Anyone got a good pro’s / con’s of each route?

    Have never heard of this and will follow out of interests sake.


  • Registered Users Posts: 17,211 ✭✭✭✭ dxhound2005


    There was another thread a while back, but very little input.

    https://www.boards.ie/vbulletin/showthread.php?p=115080908

    I remember reading this in the Sunday Times, but I can't recall much detail. It is behind a paywall now.

    https://www.thetimes.co.uk/article/money-q-amp-a-can-i-use-my-pension-fund-to-build-a-house-for-rent-q9cr3c68c


  • Registered Users Posts: 21 Jcarver


    Example linked below here. I don't have any experience with it myself
    http://www.bcwm.ie/services/property-in-your-pension/


  • Registered Users Posts: 787 ✭✭✭ richie123


    Getting to a stage where I might be in a position to buy an investment property, question is a few people around me reckon buying through a pension is best because rental income will be tax free however I’m not 40 yet and have that whole “it’s years away until I’m pension age” and have a gut instinct to buy normally, pay the tax on rental income and be unincumbered with time limits and what I do with the property.

    Anyone got a good pro’s / con’s of each route?

    I looked into it.
    The charge was 1 % above 50 k and 2 % below 50 k on the value if your investment.
    That was the end of that enquiry.


  • Registered Users Posts: 217 ✭✭ DM1983


    If you decide to purchase property as an investment, and that's a big if for all of the reasons regularly discussed on this forum, buying through a pension is the way to go. Tax advantage is huge. You can leverage, usually 50% ltv, pay higher interest rate than normal yes but still come out well ahead.

    No rental income tax, no cgt.

    Best bet is sign a long term lease with council to take it over and manage for you.


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  • Registered Users Posts: 222 ✭✭ TalleyRand83


    DM1983 wrote: »
    If you decide to purchase property as an investment, and that's a big if for all of the reasons regularly discussed on this forum, buying through a pension is the way to go. Tax advantage is huge. You can leverage, usually 50% ltv, pay higher interest rate than normal yes but still come out well ahead.

    No rental income tax, no cgt.

    Best bet is sign a long term lease with council to take it over and manage for you.

    Thanks, the only thing is, if I ever wanted to sell the property before pension age is there tax penalties applied, particularly retrospective on rental income?

    Why wouldn’t everyone use the pension option when buying investment properties? Trying to figure out the negatives, if any?


  • Registered Users Posts: 40 Catglee


    Thanks, the only thing is, if I ever wanted to sell the property before pension age is there tax penalties applied, particularly retrospective on rental income?

    Why wouldn’t everyone use the pension option when buying investment properties? Trying to figure out the negatives, if any?

    Are u talking about purchasing thru your pension.
    If so any rent is tax free but it's taken by the pension so to speak, I. E. You don't get it into your pocket there and then. Likewise the sale of the property etc is managed by the pension and any proceeds are put into your pension pot.
    Likewise any losses are suffered by your pension pot.
    See here
    https://www.pensionproperty.ie/why-pension-property


  • Closed Accounts Posts: 204 ✭✭ Chuckie_Egg


    Catglee wrote: »
    Are u talking about purchasing thru your pension.
    If so any rent is tax free but it's taken by the pension so to speak, I. E. You don't get it into your pocket there and then. Likewise the sale of the property etc is managed by the pension and any proceeds are put into your pension pot.
    Likewise any losses are suffered by your pension pot.
    See here
    https://www.pensionproperty.ie/why-pension-property

    Correct, I think folks are under the impression that the property is in their control. The reality is the pension fund must run the whole lot, ie manage, collect rent, do repairs, find tenants etc. You have no input other than to purchase the property day one. You will never have possession of the property.
    So at the end of the day you'd be better off putting the money into a managed pension fund with a mix of investments rather than be exposed to one sector


  • Registered Users Posts: 669 ✭✭✭ Unknownability


    Correct, I think folks are under the impression that the property is in their control. The reality is the pension fund must run the whole lot, ie manage, collect rent, do repairs, find tenants etc. You have no input other than to purchase the property day one. You will never have possession of the property.
    So at the end of the day you'd be better off putting the money into a managed pension fund with a mix of investments rather than be exposed to one sector

    I'd highly recommend buying it through a pension if you understand the risks, get the right SSAP administrator and a sponsoring employer.

    The benefits of tax free growth far out weigh having to use a management company to run the property which you'd probably be doing with an investment property anyway.


  • Registered Users Posts: 669 ✭✭✭ Unknownability


    Thanks, the only thing is, if I ever wanted to sell the property before pension age is there tax penalties applied, particularly retrospective on rental income?

    Why wouldn’t everyone use the pension option when buying investment properties? Trying to figure out the negatives, if any?

    For PAYE employees it can be difficult to get their employer to sponsor it, the fees can be quite high to the SSAP administrator €1,500 - €2,500 price will go up depending on the number of properties and complexity (can be paid from the pension), property is risky, property is illiquid and there are some other negatives. Best to have a chat with an advisor.


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  • Registered Users Posts: 27,467 ✭✭✭✭ drunkmonkey


    Do you want to use the property at any stage, i.e holiday home for the family. You've no choice but to buy privately as you need to be at arm's length from it if through a pension.

    Are you self employed/director?


  • Registered Users Posts: 1,490 ✭✭✭ thomasm


    Would not be a fan for the following reasons


    1) Need a self administered pension which will have set up fee (€1,000 to €2,5000 and minimum ongoing fee typically at least €1,000 plus VAT

    2) New Rules from Europe will mean you need 50% of your pension in regulated assets so for a property purcahse of €150,000 you need €300,000 with the balance of funds invested in other assets

    3) If using leverage the interest rates are higher because bank cant take assignment on the property asset and is considered riskier. Borrowing is however about to ruled out by the new rules also

    4) Council lettings on these are as far as I know 80% of market rent but you do get long term
    5) You are still responsible for major structural work if needed under council scheme
    6) Its an illiquid asset at retirement

    7) You will have all the usual fees inc stamp duty, estate agent, surveyor, solicitor, initial fit out. Factor in €6-10k for this depending on price of property
    8) Equities will give you a better longer term return with daily liquidity and no headaches.

    9) If you really want property investment do it via a REIT or fund, it's so much easier


  • Registered Users Posts: 222 ✭✭ TalleyRand83


    thomasm wrote: »
    Would not be a fan for the following reasons


    1) Need a self administered pension which will have set up fee (€1,000 to €2,5000 and minimum ongoing fee typically at least €1,000 plus VAT

    2) New Rules from Europe will mean you need 50% of your pension in regulated assets so for a property purcahse of €150,000 you need €300,000 with the balance of funds invested in other assets

    3) If using leverage the interest rates are higher because bank cant take assignment on the property asset and is considered riskier. Borrowing is however about to ruled out by the new rules also

    4) Council lettings on these are as far as I know 80% of market rent but you do get long term
    5) You are still responsible for major structural work if needed under council scheme
    6) Its an illiquid asset at retirement

    7) You will have all the usual fees inc stamp duty, estate agent, surveyor, solicitor, initial fit out. Factor in €6-10k for this depending on price of property
    8) Equities will give you a better longer term return with daily liquidity and no headaches.

    9) If you really want property investment do it via a REIT or fund, it's so much easier

    To answer an earlier post first, yes I am a company director.

    My fellow director is all for it and sold on the idea, his thinking is each buy a property for 200k approx and we’ll get near 200k in rent and property going to be valued around 250k give or take so he thinks a no brainer.

    I’m just more curious about other avenues or just buying normal way


  • Registered Users Posts: 1,490 ✭✭✭ thomasm



    My fellow director is all for it and sold on the idea, his thinking is each buy a property for 200k approx and we’ll get near 200k in rent and property going to be valued around 250k give or take so he thinks a no brainer.


    For a €200,000 property do you have €400,000 each to put into the pension or already in the pension plus the set up fees and property purchase costs.


  • Registered Users Posts: 446 ✭✭ Pinsnbushings


    Is setting up a ltd company to buy investment property an option? 25 percent tax on rent and 15 surcharge I believe. Don't know what fixed costs are involved in keeping company accounts etc. But hardly too much administration if there are only 1 or 2 sources of rent. Notup to speed but just wondering?


  • Registered Users Posts: 5,227 ✭✭✭ The J Stands for Jay


    Thanks, the only thing is, if I ever wanted to sell the property before pension age is there tax penalties applied, particularly retrospective on rental income?

    Why wouldn’t everyone use the pension option when buying investment properties? Trying to figure out the negatives, if any?

    No tax penalties, the funds just stay within your pension when the property is sold.


  • Registered Users Posts: 5,227 ✭✭✭ The J Stands for Jay


    For PAYE employees it can be difficult to get their employer to sponsor it, the fees can be quite high to the SSAP administrator €1,500 - €2,500 price will go up depending on the number of properties and complexity (can be paid from the pension), property is risky, property is illiquid and there are some other negatives. Best to have a chat with an advisor.

    Some of the pension providers can do this, so there's no need for the SSAP administrator or pensioneer trustee. I haven't looked at this area in years, but banks had stopped lending to pensions for property.


  • Registered Users Posts: 3,818 ✭✭✭ Darc19


    McGaggs wrote: »
    Some of the pension providers can do this, so there's no need for the SSAP administrator or pensioneer trustee. I haven't looked at this area in years, but banks had stopped lending to pensions for property.

    Except Dillosk who will lend 50% but want every t crossed, every i dotted and you must use one of their approved trustees and management agents.

    But where it comes into its own is not requiring any loan and being able to buy at auction where you can find a couple of gems especially in commercial property.

    The EU iorp II regulations have not come into force yet and single member pensions may be excluded (the reg will restrict pension property investment to 50% of pension value)

    But definitely talk to an advisor. Just Google ssap pension and choose one.

    The other advantage is that it has to be at arms length, so you have to have it managed, and that takes the work out of it.


  • Registered Users Posts: 994 ✭✭✭ Curious Geroge


    Is setting up a ltd company to buy investment property an option? 25 percent tax on rent and 15 surcharge I believe. Don't know what fixed costs are involved in keeping company accounts etc. But hardly too much administration if there are only 1 or 2 sources of rent. Notup to speed but just wondering?

    Interested in this option if anyone has looked into it or even done it. Initial money to cover the 20/30% of property value would be director loans, rent is non taxable (or very low tax) and the property can be sold in the future with directors able to take up to ??k tax-free plus there is initial company loan's. Not too sure if ?? is 250k tax-free or how cgt works for the company on the property value but would be good to hear if anyone looked into this in any detail.


  • Registered Users Posts: 1,490 ✭✭✭ thomasm


    Interested in this option if anyone has looked into it or even done it. Initial money to cover the 20/30% of property value would be director loans, rent is non taxable (or very low tax) and the property can be sold in the future with directors able to take up to ??k tax-free plus there is initial company loan's. Not too sure if ?? is 250k tax-free or how cgt works for the company on the property value but would be good to hear if anyone looked into this in any detail.


    Why is the rent non taxable or very low tax ?


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  • Registered Users Posts: 994 ✭✭✭ Curious Geroge


    thomasm wrote: »
    Why is the rent non taxable or very low tax ?
    I had thought it would be 12.5% but reading this its actually 25%. Still less than the higher rate of tax + prsi + usc if purchased as an individual. I'm not an expert in this field, hopefully someone can provide more details.
    https://www.paylesstax.ie/acquiring-an-investment-property


  • Registered Users Posts: 152 ✭✭ bish76


    Setting up self managed pension fund (and investment property or stock) is possible. Explored it last year with a fund manger and concluded it makes sense if pool is a million or more. For smaller funds, legal accountants, fund manager, property maintenance take a large proportion of saving you would make as compared to putting this lump sum in pension funds.


  • Registered Users Posts: 222 ✭✭ TalleyRand83


    McGaggs wrote: »
    No tax penalties, the funds just stay within your pension when the property is sold.

    But if you pulled it early and decided to sell before Pension age and wanted the funds in say 6 years, obviously subject to tax penalties? What about retrospective tax penalty on rental income?


  • Registered Users Posts: 5,227 ✭✭✭ The J Stands for Jay


    But if you pulled it early and decided to sell before Pension age and wanted the funds in say 6 years, obviously subject to tax penalties? What about retrospective tax penalty on rental income?

    You can have the property sold whenever, but you can't take funds from the pension until you reach early or normal retirement age.


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