Using a trust to buy investment property – A guide

Trusts are a valuable option for people who want to invest in property because they carry several benefits that protect your assets and reduce taxation. Let’s start with the basics and take a look at different factors to consider to see if buying property through a trust is the best option for you.

Trust Options in South Africa 

In South Africa, there are 3 main types of trust. An ownership trust, where the owner of the trust must transfer assets into the trust and name beneficiaries of the trust. A bewind trust, which allows the owner to transfer assets into the control of the beneficiaries of the trust. And a curatorship trust, where the trustee administers the trust for a beneficiary who is unable to manage the trust or assets themselves.

Pros and Cons of Buying Properties Through A Trust 

Usually, an ownership trust is used for property investments, as it allows the owner to transfer property into the trust and name specific beneficiaries as well as the conditions under which beneficiaries inherit in the event of the owner’s death. Because trusts are separate legal entities to the owner of the trust, the assets are protected in the event of the owner going bankrupt or facing legal action and transfer immediately to designated beneficiaries in the event of the owner’s death, avoiding the levels of taxation and the waiting periods associated with Wills. This is because assets within the trust no longer belong to a person, they belong to the trust.

The properties will still be subject to Capital Gains Tax in the event of being sold at a level of 80% rather than the 40% that individual owners are subject to. The income of the properties, if rented, is also subject to taxation at 45% per annum and no rebates apply.

To set up a trust and keep it running, you’ll have to pay a significant set of fees and make applications to the court in order to have it legally-recognised, although many people feel that this expense is worth the protection given to the assets within the trust, and the access their heirs will have in the event of the founder passing away.

If you are considering building your property investment portfolio through a trust, it’s important to get the right advice from an investment specialist to ensure that it is the right path for you to take.

Jason Scholtz is the CEO at Envision Investments and a leader in the property and strategic investments industry in South Africa. For more investor tips and an insider’s look into the South African market, be sure to get in touch, keep an eye on this blog or visit http://www.envisioninvestments.co.za/

Leave a Reply

Your email address will not be published. Required fields are marked *