5 THINGS YOU MUST KNOW ABOUT PROPERTY STRUCTURING
“Trusts are increasingly recommended by estate planning attorneys as an integral part of planning a family’s estate.”
Buying property in an investment structure can be overwhelming, especially for first-time buyers. So, we’ve summarised this entire series (with links to each article), so you can always have it handy!
When you are building a property portfolio, you are building a business, and you want to run your business so that banks and investors take you seriously. When you build your property portfolio in an entity, you have a separate bank account, and financial statements have to be prepared.
Here are some property structure examples:
It’s always good to remember these advantages and disadvantages of buying property in an entity. Using a trust protects your assets should something happen to you. “Using trusts is excellent for estate planning to reduce estate duties, executor’s fees, capital gains tax, and even, in some instances, transfer duties”.
There are also significant tax advantages when you use the correct legal structure. And although the tax rate of a company is lower, you can reduce taxes to a minimum in a trust, unlike in a company.
Some of these disadvantages may discourage you, but tax should never hold you back from your investment dreams. An adequately structured property portfolio is one of the best investment vehicles to use to pay minimal taxes.
The interest portion of your bond payment, levies, rates and taxes, maintenance (excluding improvements, which should be capitalised), administration fees and all other relevant expenses are tax-deductible expenses.
One of the most significant advantages of using trusts is the CONDUIT PRINCIPLE. “If income accrues to a trust and the trustees award it to one or more beneficiaries in the same year, the income retains its nature in the hands of the beneficiary.” This means that the beneficiaries will pay tax in their personal capacity. Thanks to the conduit principle, you often pay less income tax or capital gains tax in a trust than in any other entity.
Now, if you think structuring is expensive, don’t let death catch you off-guard!
Acquiring shares or assets in trusts will separate ownership of these assets from your personal estate causing minimal disruption at your death as these assets don’t form part of your estate and won’t be included for estate duty, capital gains tax, transfer fees and executor’s fees purposes.
Anybody who has lost a loved one knows that it is not just an emotional, but a financial strain as well. Dying is expensive… And beneficiaries often expect an inheritance only to find out about costs and taxes they were unaware of.
“Unless structure follows strategy, inefficiency results.” You may have a property investment strategy. But if your property portfolio is not in an investment structure, the solution is simple! You have to restructure!
While restructuring can become expensive, it is necessary because the longer you delay, the bigger your problem will become and the higher your costs will be.
Remove any excuses to keep your properties in the incorrect investment structure. It is too costly. Keep this structuring guide nearby, and you will avoid expensive mistakes.