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What are the advantages and disadvantages of buying property in a trust

What are the advantages and disadvantages of buying property in a trust

What are the advantages and disadvantages of buying property in a trust?

Some people buy property in a trust as opposed to buying in their personal names and there are a few reasons why this would be considered, however there are tax implications that need to be discussed with your accountant before making a decision.

Business owners, professionals and builders are particularly exposed to litigation as individuals because of the nature of their business to provide guarantees, taking on business debts or legal obligations that could result in bankruptcy and loss of personal assets.

Regardless, here are some points to consider if you are unsure if buying property in a trust is something to pursue:

Who is buying the property?

  • If buying with other people, you may decide a trust structure where each buyer is a member with an allocated share each.
  • If buying property as part of a business venture, buying in a trust as may be preferred as opposed to the Directors buying in their personal names.
  • If it is a family home, and there are no real reasons the owners assets would be at risk, purchasing a property personal names may be suitable.

Advantages of buying in a trust:

  • You, as an individual, are removed from the asset if legal action eventuates.
  • In a trust, a creditor pursuing a family member or trustee company for a debt cannot lay claim to the trust assets.
  • It allows the income to be distributed as desired amongst trust members.
  • The trust can be passed onto the next appointor within the trust without having to be sold or transferred and no stamp duty taxes.

Disadvantages of buying in a trust:

  • There are additional costs to set up, operate and maintain the trust (e.g. larger tax return expense than personal tax returns).
  • Land tax thresholds differ to that of holding property in a personal name, so land tax may be applicable from day one depending on state, trust type etc.
  • There can be tax implications on the capital gains tax exemption.
  • A trust cannot distribute a loss on an investment property, so no tax deduction on your personal tax return.
  • To transfer a property into an individuals name (e.g. inheritance or change of structure), stamp duty will be applicable.
  • You may need to contribute higher capital into the trust for finance approval (e.g. lenders may require a lower LVR such as 70%).
  • Concessions and grants are generally not applicable.

Advantages of buying in personal names:

  • If you are eligible for investment property tax deductions, you can see the benefits annually.
  • Losses on the investment property can be claimed annually.
  • More options for finance and generally higher LVR’s up to 95%.
  • Capital Gains Tax exemptions may be available.
  • There is no land tax payable on an owner occupier property (unless it falls under premium property land value).
  • First home buyer and stamp duty concessions may be applicable.
  • An owner occupied house can be passed onto a spouse or beneficiaries without stamp duty if the owner passes away.

We hope this information was helpful to explain some of the different advantages and disadvantages to buying property in a trust compared to a busing property in personal names.

The way that you structure the purchase of a property can have significant financial implications, it’s important to get it right upfront.

Please note that this is not legal or tax advice and it is always recommended people speak with a licenced professional before they make any decision to purchase property.

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