Should You Buy Property in Personal Name or Trust/company?

Thinking about investing in property? You’ve got a big decision to make: should you buy in your own name, set up a trust, or go through a company? It’s like picking the best tool for the job – each option has its own perks and quirks. Buying in your name is simple and can save you on taxes. Trusts are great if you want to protect your assets and have some flexibility with income. Companies are often the go-to for bigger portfolios or when several investors are involved. But watch out – making the wrong choice can be expensive. There’s no one-size-fits-all here; it depends on your income, goals, and how much risk you’re comfortable with. Think about your long-term plans and the tax impacts before deciding.

At The Investors Agency, we’re here to help you navigate these choices and align them with your financial goals. Our experts offer insights to ensure your investment strategy is solid and tailored to your needs, so you can confidently tackle the complexities of property investment.

Ready to make the right choice and grow your property portfolio? Let’s explore the pros and cons of each option to help you decide.

Understanding your options

First of all, it’s important to understand the general options available to property investors in Australia before we get into the details.

Personal name: Purchasing real estate as an individual
Trust: Either through a family trust or unit trust structure.
Company: This would be property investment through a company structure.

Each of these options has its set of pros and cons that we would like to discuss in detail below.

Buying property in your personal name

Most first-time investors buy property in their personal name. This is certainly the most simple way to do things – but it doesn’t necessarily make it the best. There are several advantages to personal ownership but also some disadvantages.

Advantages of personal ownership

Simplicity: Buying in your personal name is the most straightforward option. Less paperwork and lower set up costs have to be incurred compared to trust or company structures.
Capital Gains Tax Discount: One has to keep on to the residences for greater than 12 months to get a 50% bargain in capital profits tax.
Primary Residence Exclusion: You can be eligible for entire or partial capital gains tax exemption if your home is your primary region of residence on the time of selling it.
Negative Gearing Benefits: The terrible gearing of residences can be deducted against your personal human earnings, which let you lessen tax legal responsibility.

Disadvantages of personal ownership

Limited Asset Protection: In the event that you are sued or experience other financial difficulties, your personal assets, including the property itself, may be at risk.
Lack of flexibility: It can be challenging to change the structure or transfer ownership in the future without incurring stamp duty and capital gains tax consequences.
Higher Taxes: If your income increases, the rental income may be subject to higher marginal tax rates.
Risk: Having real estate registered in your name entails some risk of personal liability. Your property and other personal assets may be in jeopardy if you are sued.

Purchasing property through a trust

Trusts are like the Swiss Army knives of property investment – versatile, powerful, and increasingly popular, especially among savvy investors using family trusts. They’re not just for the ultra-wealthy anymore; more and more everyday investors are discovering their potential. Let’s unpack the pros and cons of this intriguing investment strategy.

Advantages of trust ownership

Asset Protection: The trust can provide protection of the assets from potential creditors. Trusts can provide a level of asset protection. Since the property is owned by the trust, it is generally not accessible to creditors if a beneficiary faces legal action.
Flexibility in Income Distribution: The process of distribution of income among the beneficiaries is at liberty, which can result in tax advantages.
Estate Planning Tools: Trusts are excellent estate planning tools since they allow for easy transfer of assets to the next generation or beneficiaries.
Longevity: Since trusts, unlike individual persons, do not die, there is no hassle associated with long-term property ownership.

Disadvantages of trust ownership

Complexity: Creation and operation of a trust is more complex than ownership in individual names and may require ongoing professional advice.
Set-up and Ongoing Costs: These are creation and ongoing administration costs related to trusts.
Limited Negative Gearing Benefits: trusts cannot distribute losses to beneficiaries, which may limit negative gearing benefits.
Possible loss of main residence exemption: A property held in trust will not qualify for the main residence capital gains exemption.

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Buying property through a company

Ever thought of your property investment as a mini-corporation? That’s essentially what buying through a company structure offers. It’s the road less traveled for residential investors, but don’t write it off just yet. This approach can be a game-changer, especially if you’re dreaming big with larger portfolios or eyeing the commercial property landscape. Let’s look into why some savvy investors are choosing this corporate path and whether it might be the secret ingredient your property strategy needs.

Advantages of company ownership

Asset protection: It allows companies to clearly distinguish a business from personal assets and offers strong asset protection.
Flat Tax Rate: Companies pay a flat tax rate of 30% in most cases, and for high-income earners, this could be very beneficial.
Simplicity for Multiple Investors: For properties with multiple investors unrelated to each other, at times it may find the use of a company easier rather than undergoing complex trust arrangements.

Disadvantages of company ownership

No Reduced CGT: Companies are denied the 50% discount in capital gains tax available to individuals and trusts.
Higher Tax on Distribution of Profits: Profits distributed as dividends could attract a higher tax in the hands of shareholders.
No Negative Gearing: It allows losses to be used against other income of the company only; not against personal income.
Complexity and Costs: As in trusts, there are basic formation costs and associated ongoing management costs for companies.

Factors to consider when choosing an ownership structure

Income: Consider your income against the assets and other investments already condemned.
Long-term strategy: What would be your long-term strategy for property investment? How does that fit in with your overall financial plan?
Risk Profile: Consider your tolerance to risk and the level of protection of assets you need.
Tax Implications: The taxation implication of each structure covers income tax, capital gains tax, and land tax. Keep this in mind from the start.
Future Flexibility: How does the structure easily adapt to a potential change in your circumstances?
Cost vs. Benefit: Weigh the ongoing costs of more complex structures against possible benefits to you.

Making the right choice for your property investment

Deciding between personal ownership, a trust, or a company structure for your investment property is a crucial and complex decision influenced by various factors. While personal ownership offers simplicity and clear tax benefits, trusts and companies can provide additional asset protection and potential tax advantages. It’s essential to consider your risk profile, investment goals, and long-term plans when making this choice.

At The Investors Agency, our property investment advisors specialise in guiding you through these complexities to build a successful property portfolio aligned with your financial objectives. Our professional advice, combined with insights from accountants and solicitors, ensures that your investment strategy maximises returns and offers robust asset protection.

Remember, the right structure can significantly enhance your investment returns and provide better tax efficiencies, while the wrong choice can lead to unnecessary costs and complications. Take the time to understand your options, consider your unique situation, and make an informed decision to achieve long-term success in the Australian property market.

FAQs

Can I transfer a property from my personal name to a trust or company later?

Yes, it is possible to transfer property to a different ownership structure later on. However, this usually triggers stamp duty and capital gains tax liabilities. It’s often more cost-effective to choose the right structure from the beginning.

Are there any restrictions on borrowing when using a trust or company structure?

Some lenders may have stricter lending criteria or higher interest rates for trusts and companies compared to individual borrowers. It’s best to discuss this with a mortgage broker experienced in these structures.

How does land tax differ between personal, trust, and company ownership?

Land tax rules vary across Australia’s states and territories. In some areas, trusts and companies may face lower thresholds or higher rates compared to individual owners. Check with your local state revenue office for specific details.

Can I still access the first home owner grant if I buy through a trust or company?

Typically, to qualify for the First Home Owner Grant, the property must be purchased in your personal name. Buying through a trust or company usually disqualifies you from receiving this grant.

How do I decide which structure is best for me?

The best structure depends on your specific circumstances, including income, investment goals, risk tolerance, and long-term plans. It’s advisable to consult with property investment strategists, accountants, and lawyers to determine the most suitable option for you.

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