Buying Property in a Trust

There is always a debate as to which vehicle is best for purchasing property. There are indeed pros and cons to every situation, and individual circumstances will also impact upon the ultimate decision made.
Says Carol Reynolds, Pam Golding Properties area principal for Durban Coastal:  “On the whole, we encourage buyers of residential property to purchase their primary residences in their personal capacities, as this way they will enjoy the R2 million capital gains tax exemption when they come to sell. However, for second and third properties that cannot be construed as primary residences, buying in a trust makes the most financial sense.”
She says trusts offer homeowners huge value in that they are well suited for asset protection and ring fencing risk. In addition, they have the benefit of being passed from generation to generation and hence bypassing estate duties.
The other advantage of owning property in a trust is that the trust can be taxed in the hands of the beneficiaries. This often results in a lower tax bracket for the parties, and hence less tax liability.
“It is however important to note that you cannot buy property in the name of a trust to be formed. The trust needs to be in existence at the date of sale. Fortunately, registering a trust doesn’t take long – usually about two weeks. Ideally, an attorney or accountant will register the trust for you and then it is best to ask the attorney or accountant to stay on as an independent trustee.”
SARS is looking at trusts very closely, so they need to be managed correctly. This means having an independent trustee, maintaining records, maintaining accounts and ensuring that the trust is not deemed to be an ‘alter ego’ - ie simply an extension of the self in a contrived legal entity.  
Most attorneys and accountants will support trust and property ownership in trusts because of the asset protection benefits as well as the tax savings. “It is always best to seek advice from an accountant before making a decision in this regard,” says Reynolds.
“Generally, we find that most of our sales transactions are concluded with individuals in their personal names, largely because of the capital gains exemption, while trusts and companies account for a small percentage of sales. Companies tend to be the preferred option for commercial property transactions whereas trusts are used for both residential and commercial sales.
“It is best to obtain advice before choosing the correct legal entity for a property purchase. It is also important to have signed resolutions on hand when you are dealing with trusts, as sometimes it can be tedious obtaining signatures from all the trustees, particularly when they do not all reside in the country.” 

  Comment on this Article

  Please login to post comments

Post to my facebook wall
Characters remaining

    Latest Property News
    • 21 Jun 2018
      Anyone who’s ever been involved in a building project that’s gone wrong will appreciate the importance of adequate insurance cover in the construction industry.
    • 21 Jun 2018
      A recent news story about a blind tenant caught in a legal battle with his body corporate over letters and notices he was unable to read and consequently comply with has raised the question: what are the legal obligations for landlords with disabled tenants?
    • 21 Jun 2018
      A trend that’s taken the world by storm in recent years is that of hygge (pronounced: hue-guh), a Danish concept that is about creating intimacy, connecting with loved ones and taking pleasure in small, ordinary things.
    • 20 Jun 2018
      Buying or selling real estate isn’t as easy as it is portrayed sometimes, especially if there is a death of a party during the transaction which can make it awkward, tricky and inconvenient.
    • 20 Jun 2018
      With interest rates remaining at historic lows and banks continuing to compete for mortgage finance business, first-time buyers with funds at their disposal are currently well-placed to gain that initial foothold on the property ladder, particularly in the light of the slightly lower growth rates currently experienced in residential property values.
    • 20 Jun 2018
      The average size of bond granted in SA has grown 7,7% in the past 12 months to R934 000, according to BetterBond, the country’s biggest bond originator.
    • 19 Jun 2018
      In the current market, letting out a property can be a good option as rental demand remains strong, especially in the northern suburbs of Johannesburg. This is according to Chris Renecle, MD of Renprop. However he says that before homeowners let their property out, there are five key points they should make sure are covered before they market the property for rent and sign any lease agreements.
    • 19 Jun 2018
      The Capetonian dream is to live by the ocean with the iconic mountain making an appearance somewhere in the horizon. But, that dream comes with a hefty price tag that many simply cannot afford. But, should you venture some kilometres out of the city centre, entirely new realms of beachside bliss await you …
    Subscribe to the MyProperty Newsletter

    Last Name  
    Email Address  
    Email Frequency
    Share this Page

    For Sale Property
    Rental Property
    More Options
    Connect with us