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Should I invest in a pension or property. Why not both?

Should I invest in a pension or property. Why not both?

How to invest your pension in property.

Property and pensions are probably the two biggest investments you are likely to make in your life. So, what happens if you combine the two and invest your pension in a property? The good news is that it is possible via most types of pensions – personal, company, paid-up pension, etc..

 The benefits are –

  • Investment control
  • Long term income generating asset via rent
  • Capital growth potential
  • Tax incentives –

Contributions towards a pension are allowable against tax (personal/company depending on situation), no tax on rental income (tax saving of up to 50%), no capital gains tax on selling (currently 33%).

Can I invest in residential property? Yes

The outlook for residential property in Ireland is very positive, given the strong demand for renting and difficulty obtain mortgages. Provided pension rules are satisfied, a pension scheme can acquire residential property in Ireland, UK and other countries. Individual pension property acquisitions are very popular in Ireland, pension lending is now a viable option with up to 70% loan to value lending allowable over a max of 15 years.

What about commercial property via my pension? Yes

Commercial property often gets overlooked and can offer attractive returns (longer leases, multi let etc..). There are two ways you can invest in commercial property via your pension.

The simplest way is by investing in a commercial property fund, but you can also buy a commercial premises/property as part of your pension assets. In general you would need a larger pension pot when considering buying a commercial property to hold in your pension. Lending options are available from a few providers.

Some of the benefits of using a pension to invest directly in property –

Rent, gets paid into the pension fund and accumulate tax free

No capital gains tax on sale of the property

You can join up with others to purchase the property

However, as it is a pension you can’t access your pension money/rent until you reach retirement. All transaction must be at arms length (you or your family, cannot have any personal interest in the property before purchase or whilst renting/holding/selling the property).

Some other Key Pension Benefits

  • Tax Relief on contributions made to a pension
  • Tax Free growth of funds in a pension fund
  • Tax Free Cash at  retirement of up to €200,000
  • Tax efficient income options at retirement
  • Tax-Free Death Benefits

Worked Example, private property purchase v pension property purchase

1) Property Purchase Value €200,000 (funded via equity of €100,000 and lending €100,000)

The growth rate of property 5% pa, the Growth rate of investment 5% pa, Rental yield 6%.

Income tax rate 53% on rent, Capital Gains tax at 33%. Term 15 years.

– Private property value at term-end after-sale €394,844

– Pension property value, at the end after-sale €631,749

Difference €236,905, a 60% gain via a pension

2) Property Value €200,000 with no borrowing

– Private property value at the end after-sale €443,537

– Pension property value at the end after-sale €752,374

Difference €308,836, a 70% gain via a pension.

It is a question I often get asked, should I invest in a property or pension. The answer really depends on your own personal situation. If you would like to explore the options then, please feel free to get in contact, we can have a chat with no obligation or cost to you.

Kevin O’Neill

Independent Financial Broker




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