Any assets held in an ARF (including a rental property) operates on a “gross roll-up basis, so no tax is paid within the fund. Tax is paid on income drawn down from the fund - minimum 4%pa. The issues with holding a rental property as an asset are:
- the property must be bought, rented and sold at arms length. So you cannot buy a property you already own personal. You cannot rent it to a connected party such as a son or daughter. When the ARF sells the property it also must be sold at arms length.
- the ARF must be managed by an independent manager who will also be responsible for managing the property. So any rental income will need to cover all the associated costs such as insurance, maintenance, repairs etc.
- depending on the net rental income (after allowing for costs), the ARF will need to retain sufficient liquidity to pay out the minimum of 4% drawdown each year
If you are proposing to invest some ARF assets into a rental property you will need independent and specialist advice.