ASSET PROTECTION, TAX BENEFITS, AND SCALABILITY — ALL IN ONE STRUCTURE
At Prosperity Enterprises, we’ve helped structure thousands of property portfolios across South Africa. And if there’s one thing we’ve learned through both success and costly mistakes, it’s this: structure matters. It determines your tax exposure, liability, growth potential, and legacy.
In the early years, we used to structure portfolios directly into trusts. It seemed like the best option at the time. After all, trusts offer asset protection and continuity. But experience taught us otherwise. Today, we recommend a far more practical and scalable structure: buy property in a company, and hold the shares in a Holdings Trust.
Let’s unpack why this approach is far superior for serious investors.
1. Dependence on the Independent Trustee
When property is held directly in a trust, every significant decision must be signed off by the independent trustee. That means refinancing, signing lease agreements, or selling a property involves constant back-and-forths. As you grow your portfolio and the pace of deals increases, this dependence becomes a serious bottleneck.
By contrast, when the property is owned by a company (where you’re a director), you can act quickly — while still protecting the shares via the trust. You regain control without compromising on asset protection.
2. Heavy Administration and Compliance Burden
A trust that holds property directly becomes admin-heavy. Every single document — from leases to sales agreements to bond applications — must be approved and signed by all trustees. And banks aren’t always comfortable lending to trusts with complicated signing procedures.
We’ve seen clients get caught in unnecessary delays, sometimes losing out on deals because of this structure.
By using a company to own the property, you run it like a business. It’s easier to manage, easier to finance, and easier to scale. And with the shares held in a Holdings Trust, you don’t sacrifice protection.
3. The Myth of Being ‘Tax-Free’ in a Trust
Many people are sold on the idea that owning property in a trust is “tax-free.” But that only works if you continuously refinance your properties to unlock capital losses — a strategy that becomes increasingly difficult as you grow older, your risk appetite drops, or your ability to refinance is restricted.
Without consistent refinancing, properties held in a trust are taxed at 45% if profits are not distributed. This is a major pitfall.
In contrast, companies are taxed at just 27%. And with proper planning, you can pay salaries, dividends, issue director loans, or use your Holdings Trust to distribute profits to beneficiaries in a tax-efficient way.
4. Legal Risk: Trusts Cannot Be Sued — Trustees Can
Here’s a little-known fact that becomes crucial in practice: a trust cannot be sued. The trustees are sued personally.
If a tenant sues for damages or a service provider pursues a claim, the legal action comes against the trustees — that includes you. This creates unnecessary personal exposure.
When the property sits in a Pty Ltd, the company takes on the risk. That’s what limited liability is for. Your personal name and your trust’s other assets are ring-fenced from these claims.
5. High Tax Brackets = Higher Tax in Trusts
Most professionals, business owners, and investors are already in higher tax brackets. If rental profits are retained in a trust, they’re taxed at 45%. If distributed, they are taxed in the hands of the beneficiaries, which could also be at high marginal rates.
A company, on the other hand, pays 27% — and you have full control over when and how to declare dividends or issue loans to your Holdings Trust.
This flexibility is critical for strategic tax planning.
So What’s the Ideal Structure?
We recommend two core trusts for property investors:
1. The Holdings Trust
This trust owns the shares in your property companies. This is where you build wealth.
2. The Family Trust
This is a low-risk vehicle used to protect your wealth, receive distributions, and fund your lifestyle.
Here’s how the flow works:
- Properties are bought in a Pty Ltd.
- The shares in the company are held in the Holdings Trust.
- The Family Trust lends funds to the Holdings Trust.
- The Family Trust manages your lifestyle assets and builds a generational legacy.
This gives you the best of all worlds: control, tax efficiency, scalability, and protection.
Key Benefits of This Structure
✅ Increased Financing Capability
Companies are easier to finance. Banks understand them. They come with financial statements, bank accounts, and a director — not a board of trustees. You’ll build a much bigger portfolio with this structure.
Read more: How To Run Your Property Portfolio Like a Business
✅ Improved Asset Protection
If you default on a bond, all assets in that trust or company are at risk. That’s why you don’t want one entity holding everything. Trusts allow you to split and ring-fence risks across multiple entities. Your Family Trust protects your lifestyle assets. Your Holdings Trust owns shares. The companies carry the property debt and operational risk.
Read more: Understanding The Purpose Of The Family Trust
✅ Legacy Planning & Continuity
When you die, properties in your name are subject to estate duty, executor’s fees, CGT, and delays. But trusts don’t die. Assets in trusts stay protected, out of your estate, and seamlessly continue to the next generation.
Don’t wait until your estate is too big to restructure — it becomes much more complex and expensive later.
✅ Tax Planning with the Conduit Principle
Distributions from trusts can be passed through to beneficiaries and taxed in their hands, often at lower effective rates. When used correctly, trusts and companies offer the most flexible tax strategy for investors.
Read more: Why You Need at Least Two Trusts and How to Use Them Correctly
P.S. If you’ve already registered a Property Trust with us in the past and acquired property directly in that trust, rest assured — your structure is still legally sound and fully functional. There is nothing wrong with it. In fact, many clients continue to operate successfully with that setup.
Over time, however, we’ve refined our approach and now recommend a more scalable structure — using a company to purchase property, with the shares held in a Holdings Trust. This updated model offers greater flexibility, ease of financing, and simplified administration as your portfolio grows. That said, the trusts we registered for you remain valid, compliant, and can absolutely still be used for future purchases if preferred.
In Conclusion
Trusts are powerful, but they are often misused. Owning property directly in a trust may look simple — but it becomes impractical, inefficient, and risky as you grow.
At Prosperity Enterprises, we’ve walked this road. We’ve seen the complications firsthand. That’s why we recommend buying property in a company and holding the shares in a Holdings Trust. It’s smarter, safer, and scalable.
Let us help you build your empire — the right way.
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Read the entire article in the May 2025 Edition of Real Estate Investor Magazine.