Money Talks: Can I use a rental property as my pension?

Carol Brick advises on how an investment property could be a wise investment for retirement

Thu, 02 Dec, 2021 - 02:00

I am interested in purchasing a rental property to provide an income in retirement and would like to do so through a pension type arrangement. Is this even still possible, can you please advise?

The simple answer is Yes, you can indeed buy an investment property through a revenue approved Self-administered Pension Scheme. This type of pension scheme allows you to identify and buy specific properties with the objective of providing consistent reliable long-term income in retirement. Key Points to Note are as follows: You can choose the property you wish to purchase, and it can be residential or commercial. Any properties held within your pension scheme must be on a totally “arm’s length” basis from you the beneficial owner. This includes but is not limited to any connected person or entity e.g., family members. If your pension property is used by a person or entity connected to you, this is deemed as a distribution from the pension scheme from the date of first use and will be taxed accordingly.

To purchase a pension property, it is a requirement of the Revenue Commissioners that the property is properly managed. Loans for commercial property can be made available but must comply with applicable Revenue rules. In the case of a commercial property, the fund can be registered for VAT if required.

Rental income in the pension is tax-free and there is no requirement to complete income tax returns on the property. There is also no capital gains tax on sale.

Income tax relief is available on all contributions made to the fund to facilitate the purchase of the property. All costs associated with the property purchase are met by the pension scheme. is possible to buy a property and lease it to a local authority on a long-term lease, giving you what is effectively a State-guaranteed income. The purchase of a property with a view to development and immediate disposal is prohibited.

The purchase of a holiday home is permitted on the condition that no party connected to you uses the property. Upon retirement, you can take 25% of the value of the pension fund as a lump sum, of which €200,000 is tax-free. The property could then be transferred “in specie” to a self-administered ARF and the rental income would then contribute to your income in retirement. Drawdowns would be subject to income tax will hopefully be at a lower rate than when you were working.

The process would involve engaging the services of a Professional Financial Advisor who has specialist knowledge in Self-administered Pension Schemes. You would need to discuss your current pension arrangements and look at perhaps transferring these into the new scheme (where appropriate). Some advisors would recommend that you have a minimum pension fund of €200,000 before you even consider purchasing a property. You would then select the property and your advisor will assist on how best to prepare to have the appropriate funds in place.

Many people got into trouble by being invested too heavily in property during the Celtic Tiger era and often with huge borrowings attached. My overall advice in regards to investing in property would be that it should only be considered as part of an overall balanced portfolio and detailed analysis, due diligence and quality advice should be very carefully considered.