Pension Mortgage for Overseas Property?

I've read all the threads on here but everywhere Pension Mortgages are mentioned, it seems to be in the context of buying property through a buisness and then renting it back / business making the pension payments. Noone seems to use a PM for anything else - is a business property the only possible option?

I'm a shareholding director, 42, company is paying 30% of salary into a pemsion scheme, Im only pating 7.5% in AVCs - can I increase my AVCs to take the tax benefits and go for a Pension Mortgage for a foreign property, which will then be paid off later by my increased final pension fund?

Or am I talking a load of rubbish?

Bear in mind that a pension mortgage is really two bundled products - an interest only mortgage linked to a pension. There is no necessity to bundle in many cases. However obviously with an interest only mortgage you need some strategy for clearing the loan at the end of the term (or before in some cases). Capital appreciation may handle this but not necessarily.

Thanks Clubman

Assuming my pension fund is adequate to clear the mortgage at the point I retire with the 25% lump sum, I presume that will do the deed for me?

I'm hoping I'll have other accumulated savings by then, which will leave me with cash on hand, and the pension remaining will be adequate to live on hopefully?

Am I correct in saying it really boils down to whether I'd be happy to use the 25% lump sum to clear the mortgage on the overseas property rather than having it in my hand?

I suppose I'm just thinking what use any of us will have for multiple 100ks in savings at 60 or 65? In theory, our demands and needs should be a lot less by then?

Oh, one other question - does anyone have any idea of an approximate cost per 1000 Euros for an Interest only mortgage over 20 years? While its easy to find standard mortgage cost, doesn't seem to be any info out there for interest only?

Mechman said:

Assuming my pension fund is adequate to clear the mortgage at the point I retire with the 25% lump sum, I presume that will do the deed for me?

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You can clear an interest only mortgage whatever way you like. But the ledner may have their own ideas about how you should be planning to do this.

I'm hoping I'll have other accumulated savings by then, which will leave me with cash on hand, and the pension remaining will be adequate to live on hopefully?

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You would want more than just hope - you would want to have a clear and realistic plan (e.g. not assuming crazy growth rates etc.).

Am I correct in saying it really boils down to whether I'd be happy to use the 25% lump sum to clear the mortgage on the overseas property rather than having it in my hand?

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Not necessarily. You could clear an interest only mortgage with any means that you happen to have at the end of the term.

I suppose I'm just thinking what use any of us will have for multiple 100ks in savings at 60 or 65? In theory, our demands and needs should be a lot less by then?

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Yes - but don't forget about things like inflation, possible medical/residential care costs in old age, the need (in many cases) to buy an annuity guaranteeing lifetime income etc. Hundreds of thousands may seem like a lot but it can easily be eaten up in retirement.

Its all about deferred spending I guess

Hope VHI might take the strain for the medical expenses though !



Just found that handy calculator too

I suppose a lot of things can change for us all over 20 years, some good, some bad - its all a gamble at this stage, seems all we can do is do our best without risking the future - how cautious do you have to be? Its a rhetorical question I suppose, there really is no answer ........

Alternatively, you could set up your own pension trust and that could buy the overseas property.

It should be more tax efficient than a pension mortgage (no income tax on rental income from property and no CGT on sale of property).

Two points:

1. If going the pension Mortgage route you can buy any property you want, commercial, residential, holiday etc. And equally there are no restrictions on use, letting etc.
2. However if you set up a self administered pension structure you must abide by "arms length" rules and the purchase of holiday homes is not permitted. Equally the purchase of overseas property is only permitted where appropriate arrangements are in place so that the Pensioneer Trustee maintains control over the asset to ensure Revenue rules are acomplied with.

Going the pension mortgage route means no tax breaks on the property.

Going the self-admin route (and you can't do this without a pensioneer trustee) is the way to go if you want rent free income and no CGT on property liquidation.

The self-admin route is more complicated for an overseas property - however overseas property will have additional complications and costs whatever way you package it!

South,
Your post is an over-simplification:

• Under the Pension Mortgage route (assuming its a commercial purchase) the interest payments and maintenance costs can be offset against the rental income. And since no capital is being repaid, this is a very tax-effective strategy. Remenber that the capital repayments are in the form of pension contributions paid by the Company and as such are not taxed as BIK in the hands of the Director. And any capital gain is in the Directors personal hands, admittedly subject to 20%. So overall this is a very tax-effective solution in that the rental income could cover the interest payments etc, the capital cost is effectively paid by the Company and the Director owns the property personally from day 1.
• In relation to the self admin route, its only tax free income and free from CGT within the Pension Fund. Any money extracted from the Fund (during retirement) is taxable at marginal rate - other than for the 25% tax free lump sum.

Conan - those items (interest and maintenance) would be tax-deductible on a commercial proerpty anyway...tying it in with a pension is a red herring.

There are no capital "repayments" it is an interest only mortgage, with the idea that a pension fund will be used to repay the loan amount.

The amount taken tax-free is the same in both cases - it's 25% of the fund usually.

The difference is that a pension mortgage carries no tax-relief on the property - all the tax relief is coming from the fact that a pension has been set-up.
A self-admin pension means tax free income and capital gain on property - the money would usually be rolled into an ARF so there would be no trigger for CGT.