Q. I have recently sold my business and intend to take my time deciding what to do next. I may or may not go back to full time work and I’m considering drawing down my pension, getting 25 per cent tax free and then using some or all off my remaining pension funds to buy a property. I am lucky to have built up a considerable amount in my pension, but I’m unsure as to how to best make it work for me.

A friend said that he has a pension property as part of his portfolio and he “lives off the rent.” He also said that any increase in property value and rent is received is tax free. I really like the sound of this but I’m well aware of the saying that ‘if it sounds too good to be true it probably is.’ Can you tell me more about a pension property?

A. As a high net-worth Irish business owner who has diligently built up higher than average pension savings, you may be interested in exploring alternative ways to invest your hard-earned funds. One intriguing option worth considering is purchasing a property. This innovative approach can provide numerous advantages and open new avenues for diversifying your investment portfolio.

Here are the top five advantages of buying property with a pension, while we also highlight some of the main disadvantages, to ensure you make an informed decision.

  1. Tax Efficiency: One of the primary advantages of using your pension to buy property is the tax efficiency it offers. By utilising a pension, you can enjoy significant tax benefits. The rental income generated by the property is tax-free, and any growth in property value is exempt from capital gains tax, making it an attractive long-term investment strategy.
  2. Diversification: Investing in property allows you to diversify your pension portfolio beyond traditional investment options, such as stocks and bonds. Property investments have the potential to provide stable, long-term returns that are not directly correlated with the fluctuations of the stock market. This diversification can help mitigate risks and provide a more balanced investment strategy.
  3. Retirement Income: Purchasing property through your pension can offer an additional stream of income during retirement. By renting out the property, you can generate regular rental payments that supplement your pension income, enhancing your financial security and lifestyle in retirement.
  4. Asset Ownership: Buying property with a pension allows you to own tangible assets that have the potential to appreciate over time. Unlike other investments that may rely solely on market performance, property ownership provides a sense of control and the ability to actively manage and improve the asset’s value.
  5. Inheritance Planning: Utilising your pension to invest in property can also be an effective inheritance planning tool. By purchasing property within your Approved Retirement Fund (ARF), you can pass on the asset to your loved ones in a tax-efficient manner. This strategy can help preserve wealth and provide a lasting legacy for future generations.
  1. Liquidity: Property investments tend to be illiquid compared to other forms of investments. Selling a property within a pension may take time and may not provide immediate access to cash, making it less suitable for those seeking short-term liquidity.
  2. Ongoing Costs: Owning a property involves ongoing expenses, such as maintenance, insurance, and property management fees. These costs need to be factored into your investment strategy, as they can impact the overall return on investment.
  3. Limited Diversification within Property Market: While property investment offers diversification within your pension portfolio, it may not provide diversification within the property market itself. A concentrated investment in a single property or a specific geographic location can expose you to localized risks, such as changes in the local property market or economic downturns in that area.
  4. Market Volatility: The property market is subject to fluctuations, and property values can experience periods of volatility. Economic factors, changes in interest rates, or shifts in demand can affect property prices. It’s important to carefully consider the potential risks and be prepared for potential fluctuations in property value.
  5. Regulatory Changes: Regulations surrounding pension investments and property purchases can change over time. Government policies and tax laws may be subject to revisions, which can impact the viability and profitability of using a pension to buy property. Staying informed and seeking professional advice is crucial to navigate these potential regulatory changes.

In conclusion, buying property with a pension, ARF or PRB presents a compelling opportunity for high net-worth Irish business owners looking to diversify their investment portfolio. The tax efficiency, potential for rental income, asset ownership, and inheritance planning benefits make it an attractive option. However, it’s important to get qualified, regulated advice to help you consider the disadvantages as well as the advantages,

with Philip Cullen of Southeast Mortgages & Financial Services
This article aims to give information, not advice. Always do your own research and/or seek out advice from a Financial Broker before acting on anything contained in this article.

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