Q I'm interested in using property directly to fund my pension after a fund I was invested in was one of those which cut its returns on commercial property recently. I prefer the control of looking after my own investments. I have a buy-to-let, which I purchased 12 years ago. Can this be put into a personal fund or must I buy a separate property? How is the mechanism tax efficient and what are the restrictions on it?
A First, a little clarity. It's true that three providers reduced returns on some commercial property funds following unusually high withdrawals, however property is an illiquid asset and most pension funds are managed with a range of equities, cash and gilts to smooth out returns over the longer term. They have the added benefit of tax-free growth and generally out-perform any other asset class. I asked Mike Knightson of KM Financial, who specialises in pensions, to examine your query.
"While it's possible to put property into a pension, there are a couple of Revenue rules around it," he said. "Firstly, the property must be at arm's length from the scheme, which means you cannot put an existing buy-to-let property into a pension. The acquisition cannot be let or sold to the employer, directors or family members. Holiday homes are not allowed and overseas property only under certain circumstances. While borrowing by pension funds is permitted, there's a cap of 15 years' loan term and the loan must be on a capital and repayment basis."
He adds that exemptions are given in Section 774 (2) of the Taxes Consolidation Act and advises that the first thing to do is ensure the pension you currently have allows you to invest.
"If you are an employee in an occupational scheme, it's probably not going to be permitted. The types of pensions that can currently facilitate property purchase on a self-invested basis are Small Self Administered Schemes (SSAS), Buyout bonds, self-administered personal retirement savings plan accounts (PRSA) and, in post-retirement, through some ARF/AMRF contracts through a number of providers. The only personal pension contract that currently allows it is through Standard Life.
"The new EU initiated IORP 2 directive will place restrictions on such schemes. In a nutshell, borrowing will not be allowed and there will be restrictions on property investments: 50pc of the fund must be in regulated markets. This will effectively bar lots of investors from doing what you want to. IORP2 isn't fully transposed in legislation, but it could be retrospective against Occupational Pensions schemes and SSAS.
"In my view, a pension would be more tax efficient than direct investment, but you should consult a broker for specific advice for your personal circumstances."
Q I have a close relative who suffered a brain injury following an accident. He lives alone, with some supports, but he would be considered more vulnerable than he was before and although he resists help, he is not as independent as he thinks, or as other people might believe. We are worried about another relative of his, who lives near him and is constantly dropping in. While he certainly helps out, he is more than a little intrusive, looking at bank statements, offering to pay his mortgage in the bank for him etc. He has suggested a joint account which he has said would be 'easier' and I'm really worried he could get on the deeds of the house or move in. What should we do?
A It's terribly difficult to take over ownership or part share in a property. It certainly won't be done by him calling into the bank and setting up a joint account and would require a lawyer who would test for duress or vulnerability.
Banks have 'vulnerable customer' policies and are on the lookout for unusual spending patterns. Does your relative have a legal guardian? Perhaps a visit to a solicitor would help arrange a Power of Attorney, which means a nominated individual must be responsible for financial transactions. His bank could be notified of his circumstances, and if he does want to set up a joint account, then it could be restricted to paying household bills, rather than access to all of his money.