Private pension savings for first time home buyers

Apply to use private pension savings for a first home

When purchasing or building a first home, it is possible to use private pension savings tax-free.

You can either:

Withdraw accumulated contributions from the private pension fund to a bank account.
Have future contributions to the private pension savings automatically paid towards a mortgage.

Applications can be submitted once the purchase agreement has been registered, or the new construction has been assigned a property registration number.

Other homeowners: A similar arrangement exists for homeowners other than first time buyers, which are subject to different rules.

Private pension savings (supplementary pension savings) are generally intended to build up assets for use upon retirement. Once an employee has activated private pension savings, supplementary contributions are automatically paid into a private pension fund with each salary payment, and the employer additionally provides a matching contribution.

Using Private Pension Savings

When purchasing a first home, it is possible to utilize private pension savings even if retirement is not yet imminent and without having to pay tax on it.

Each applicant can utilize up to ISK 500,000 in savings per year, for a continuous period of 10 years.

See further details about the conditions of the arrangement below.

Withdrawal of accumulated savings

If you have accumulated private pension savings, you can choose to withdraw part (or all) of it to use as a down payment for your home purchase.

You decide how far back in time the withdrawal should cover, up to a maximum of 10 years. For example, you could choose to utilize savings from the past 2 years, up to a maximum of ISK 1,000,000 (2 x ISK 500,000).

Allocation of future savings towards a loan

You can also choose to arrange for supplementary contributions, which would otherwise go into your private pension fund, to be automatically paid towards your housing loan. The maximum payment is also ISK 500,000 per year.

The loan being paid must be secured by a mortgage on your first home. The loan can be either indexed or non-indexed.

If you apply to allocate future savings towards a non-indexed loan, you can choose whether the private pension savings will go towards the principal or the loan payments.

It is permitted to allocate all contributions towards payments on non-indexed loans during the first twelve months of the arrangement, but the percentage decreases each year over the 10-year period. For those who have already withdrawn private pension savings for a home purchase and/or have been allocating them towards a mortgage, the elapsed time of the 10-year period is taken into account.

Both options combined

If it suits your needs, you can combine both of these options.

The total period during which private pension savings can be utilized is a maximum of 10 years, and the total amount that each applicant can allocate is capped at ISK 5,000,000.

For example, if you have chosen to withdraw savings from the past 2 years, you can additionally choose to allocate payments towards the loan for another 8 years.

It depends on your individual circumstances which option works best.

A: Withdrawal only

Suitable for those who have contributed to a private pension fund for at least 10 years and want cash to cover the costs associated with purchasing a home.

B: Allocation only

Suitable for those who do not have existing private pension savings or want to focus on making additional payments towards their loan. If the applicant has contributed less than ISK 500,000 per year to private pension savings before purchasing a home, it may be more advantageous to use the entire 10-year period for loan payments.

C: Combined option

Suitable for those who have not contributed to a private pension fund for a long time but still want to use their balance to cover home purchase costs and then make additional payments towards the loan.

Arrangement period

The arrangement can be utilized for a maximum of 10 consecutive years. The start date of the period depends on the chosen option:

If the option to withdraw accumulated contributions is selected, you choose a reference date (in the example above, this would be a date two years in the past).
If you choos to allocate only future savings towards the loan, the start date is the month in which the application is submitted.

When both options are utilized, the period begins on the date chosen for the withdrawal of accumulated contributions. The transition between the two options occurs in the month the purchase agreement is signed.

Key Conditions

The applicant:

Must not have owned residential property in the past five years (see exceptions below).
Must be a registered owner of at least a 30% share in the property.
Must be a registered borrower of a mortgage secured by the first home.
Must apply within 12 months of the purchase agreement being signed or the new construction being registered at construction stage 2.

Married couples and cohabiting partners must each apply individually.

To complete the application, the following are required:

A registered purchase agreement (unless it concerns a new construction).
The seven-digit property registration number.
The number and details of the mortgage and private pension fund.

The processing time for applications is generally 4-6 weeks but may be longer due to seasonal workload.

Once the application decision is finalized, it can be found under 'Communications' on the Tax Authority's service portal. You will receive a notification about the message via email.

If further information ins needed during the processing of the application, you will receive a message about this on the Tax Authority's service portal and a notification via email.

Regarding the contributions of the applicant and employer:

The applicant's contribution can be up to 4% of their salary (contribution base) and a maximum of ISK 333,000 per year.
The employer's contribution can be up to 2% and a maximum of ISK 167,000 per year.
The employer's contribution cannot exceed the applicant's contribution.

If a tax return review reveals that a higher amount was allocated from the private pension fund than permitted, the excess payment is taxed as income for the taxpayer. This can occur, for example, if the employer makes an additional matching contribution that exceeds 2% of the total annual income.

An exemption from the condition that the property must be a first home is granted if:

You have not been registered as the owner of residential property for a continuous period of five years.
The applicant has not met the conditions for joint taxation with an individual who has been registered as the owner of residential property in the past five years.
Annual income (wages, pensions, and capital income) is lower than the amount of the third tax bracket. This is based on the last full year (income year) before the purchase agreement is signed.

Changes

Changes to an application are made on the Tax Authority's service portal and take effect from the month the change is applied for, not retroactively.

If you are refinancing, the monthly allocation can be transferred to a new loan.

If a property is sold, it is possible to continue allocating private pension savings, provided another property is purchased within 12 months.

If the applicant has selected the wrong private pension fund, incorrect property registration number, incorrect loan number, incorrect lender, or other errors, the application can be corrected on the Tax Authority's service portal.

Further information

Application instructions Leiðbeiningar með umsókn
Questions and answers Spurt og svarað um nýtingu séreignarsparnaðar við kaup á fyrstu íbúð
Act no.Lög nr. 111/2016 on Support for the Purchase of a First Home
Regulation Reglugerð nr. 1586/2022 on Support for the Purchase of a First Home
Tax Bracket Limits, Article 66. gr. laga nr. 90/2003 um tekjuskatt on Income Tax.

Apply to use private pension savings for a first home

Service provider

Iceland Revenue and Customs

Related material

Private pension savings for property purchases or loans

Private pension savings for first time home buyers

Using Private Pension Savings

Withdrawal of accumulated savings

Allocation of future savings towards a loan

Both options combined

Which option should I choose

Arrangement period

Key Conditions

The applicant:

To complete the application, the following are required:

Processing of applications

Division between the applicant and the employer

Exceptions regarding the first home

Changes

Change Application

Payments from the private pension savings towards the loan stop

Further information

Related material