When deciding where you can channel your next investment, considering the property market is a step in the right direction.
Having regard to the different avenues one can pursue when purchasing property, it is advised to investigate which avenue is best suited, keeping your short to long term goals in mind.
With that being said, let us consider purchasing a property in a trust. By simple definition - a trust is a legal entity where the trust founder places assets under the control of the trustees for the benefit of the trust beneficiaries. From the outset, in answering whether a trust is suitable for you, your personal circumstances and goals are going to be deciding factors.
The first and most obvious question would be, “Why should you consider utilising a trust when purchasing property?”.
There are various benefits but the most important of which are below:
1. The separation of ownership.
The property would not fall part of your own estate but rather that of the trusts. This would mean that upon your death, the property would not be wound up in your estate subject to various costs such as estate duty, capital gains tax, executor’s fees, transfer duty (subject to the relevant exemptions) and transfer fees. The trust does not die and continuity is thus also an attractive advantage.
2. Reduced value of your personal estate.
By not owning the property in your own name, upon your death the estate duty exposure of your own estate would be far less.
3. Protection from creditors.
In the event that you are declared insolvent, the property is safe from your creditors as the property is not owned by you, but by the trust.
4. Suitable Management.
In the situation where you struggle with an age-related illness to the extent that you are no longer capable of managing your own affairs, the property owned by the trust would ensure that your illness does not affect the management of the property. Furthermore and in the event that an illness of that nature becomes a reality, the trustees would be able to sell the property if need be without your family having to undergo a High Court application to apply for a curator to manage your affairs in order to sell the property.
5. Income earned by the property and tax strategies.
In the event that the property is tenanted, the trust is thus producing an income. The income would be taxed at the applicable rate of 45%. However, the trustees have the authority to distribute the profits of the trust to the beneficiaries in order to minimise the tax implication. The beneficiaries would then pay tax on such distributed profit according to their own personal tax rate. This would of course be far lower than 45% depending on your annual income.