However, it is still possible to receive Private Pension savings paid out tax-free when purchasing a first residential property. This measure also applies to Specified Private Pension.
Payments of Private Pension savings when purchasing a first home may take the form of either a lump-sum payout of accumulated Private Pension savings or a monthly allocation of Private Pension savings toward a housing loan.
Applications for this measure must be submitted on the website of the Directorate of Internal Revenue, where further information can also be found:
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Individuals purchasing their first property are permitted to use Private Pension savings accumulated over a period of up to 10 years tax-free toward a down payment or to reduce the loan principal. It is also permitted to make tax-free payments toward instalments of non-indexed loans taken out for the purchase.
The main conditions for using this measure are:
- The applicant must own a 30% ownership share in the property.
- The applicant must apply for the use of the measure within 12 months of signing the purchase agreement.
- The applicant must be acquiring their first home or must not have owned residential property for the past five years.
The annual maximum use of Private Pension savings is ISK 500,000 per individual, and the utilization may continue for a continuous period of up to 10 years.
Further information on the use of Private Pension savings for first-time property purchases and the application process can be found on the website of the Directorate of Internal Revenue.
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The specified personal pension can be used for the purchase of a first property, or as a payment into a loan for the first property purchase according to certain conditions. More information about first property purchase can be found on the Iceland Revenue website.
- Maximum payments per year for cohabitants is ISK 750,000, but ISK 500,000 for individuals.
- If a fund member saves in a traditional private pension, then payments from the specified private pension will only be added if the authorisation is not fully used.
Payments of the specified private pension into the loan proceed in such a way that during the year, the traditional private pension savings are regularly paid into the loan. If the maximum is not reached after the year, the specified private pension is used to fully utilise the authorisation.
The payment of the specified private pension into a loan or for the purchase of a property will therefore not take place until after the year has passed and it is clear that the authorisation is not fully utilised with the traditional private pension.
When can the specified private pension be used for a property loan?
If you are not saving into a traditional private pension, the specified private pension is fully used for payments into a property loan until the maximum payment per year is reached.
If you save 4% of your salary into a traditional private pension (2% employee contribution, 2% employer contribution) you fully utilise the ISK 500,000 authorisation with traditional private pension if you receive approximately ISK 1,387,500 or more in monthly salary.
If, however, you save 6% into a traditional private pension (4% employee contribution, 2% employer contribution) you fully utilise the ISK 500,000 authorisation if you receive approximately ISK 695.000 or more in monthly salary.