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
    • 19 Feb 2018
      Possibly one of the biggest sources of contention between landlords and tenants surrounds the rental deposit. “Most tenants rely on getting their rental deposits back when moving, so that they can use it to pay a deposit on their new home. Having it withheld or even having large amounts deducted can lead to a lot of distress,” explains Bruce Swain, CEO of Leapfrog Property Group.
    • 19 Feb 2018
      Situated approximately halfway between Johannesburg and Pretoria, Midrand was established in 1981 and forms part of the City of Johannesburg Metropolitan Municipality. It has become one of the major business hubs in the country with major pharmaceutical, textile, telecommunication and motoring giants situated within its boundaries.
    • 19 Feb 2018
      The PayProp Rental Index Annual Review of 2017 shows that the rental market suffered from much volatility during the year. It kicked off with rental growth spiking in January with weighted year-on-year growth (YoY) growth peaking at 8.3% before dropping to 6.34% in July, dipping down to less than 5% in November and then experiencing a slight uptick at 5.75% in December.
    • 19 Feb 2018
      While most homes in cluster complexes, estates and other gated communities come with at least one garage or carport, residents would often like additional permanent parking or storage areas for things like trailers, bikes, boats and caravans.
    • 16 Feb 2018
      Whether you own a property in a sectional title complex or are looking to invest in one, the financial standing of the body corporate is the single most important thing that can affect your investment or your buying decision.
    • 15 Feb 2018
      One positive consequence of the financial crash in 2008 was the rise in consumerism, especially in the property market, where buyers have steadily become more knowledgeable and more value conscious.
    • 15 Feb 2018
      While most homeowners will take the agent’s commission into consideration when they are trying to determine what the will get out from the sale of their property, many often forget to factor in the other costs involved in a home sale, says Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa.
    • 14 Feb 2018
      The forecast for the national rental market in 2018 remains a mixed bag of good news and bad news. Although rentals are expected to rise slowly as the challenges of home affordability and tighter lending criteria tighten their grip, it’s a double-edged sword as the market also will come under increasing pressure from factors like declining disposable income levels.
    Subscribe to the MyProperty Newsletter

    Last Name  
    Email Address  
    Email Frequency
    Share this Page

    For Sale Property
    Rental Property
    More Options
    Connect with us