select
|

Is it still a good idea to hold immovable property in a trust?

(Article by Willie Fourie, Head of Fiduciary Services, PSG Wealth)
 
With the changes introduced in this year’s Budget affecting the wealthy in particular, one might wonder if holding a property in a trust still makes sense. Unfortunately, it is not as simple as transferring the property out, and closing the trust, as there are permutations to consider.

As a quick reminder, the key changes are;

 - Higher marginal tax rate on income above R1.5m (45%)
 - Effective CGT rate for individuals and special trusts increased to 18%
 - Effective CGT rate for other trusts increased to 36%
 - Additionally, Section 7C has been introduced in to the Income Tax Act (effective 1 March this year), affecting interest-free loans within a trust,  thus impacting estate planning.

The practical implication of these changes is that unless there are other compelling reasons to retain the trust, it is probably a better option to transfer immovable property into the name of the individual who made the loan to the trust. Doing so will reduce or extinguish the loan account. However, since section 7C also provides an exemption if the loan to the trust is made for the purchase of a home for the lender, this should only be considered if a loan has been made to fund a second or an additional home.

The impact of transfer duty

Normally, transferring property from a trust will attract transfer duty, conveyancing fees and CGT. The Transfer Duty Act, however, allows for an exemption from transfer duty if the transfer is made to a beneficiary of the trust within the third degree of consanguinity of the founder of the trust (i.e. to a close relative like a grandchild, child or nephew or niece), and provided that nothing is paid for the property.

You can therefore transfer the property into the name of the relative and deregister the trust. However, the transferee, founder and the transfer itself all need to meet the requirements of the Transfer Duty Act for the exemption to apply.

Selling the property in the future

Another point to consider is the future sale of a property and the related impact of CGT if it is held in a trust. Property will attract CGT at an inclusion rate of 80% of the gain, which will be included in the taxable income of the trust. This is then taxed at 45% and, unlike in the case of a natural person, no annual rebate applies.

Trustees may, however, depending on the provisions of the trust deed, use the conduit principle to award the capital gain to any or all of the beneficiaries of the trust. This will help to ensure that the inclusion rate is reduced to 40% and the annual rebate of R40 000 is applied.

There is not a ‘one-size-fits-all’ solution


As this is a complex matter, it would be best to consult a fiduciary adviser for assistance particularly as each trust will have different circumstances, and one should consider the impact of transferring assets from a trust, or deregistering a trust, holistically.


  Comment on this Article

  Please login to post comments

Post to my facebook wall
  
2000
Characters remaining


    Latest Property News
    • 24 May 2018
      Most real estate professionals agree that 2017 was one the toughest years to date; an eminently challenging 12 months that subdued even the strongest markets - including the country’s economic powerhouse of Sandton.
    • 24 May 2018
      These are uncertain and challenging times for the real estate industry, but the non-profit organisation Rebosa is fighting for their interests and finding pragmatic solutions to industry issues such as the urgent need to fast-track transformation says Richard Gray, Rebosa chairman.
    • 24 May 2018
      The decision to invest in property isn’t one that’s taken lightly, or dealt with flippantly. The same should ring true when deciding on an estate agent partner to handle the letting out of your property.
    • 23 May 2018
      Homeowners who are thinking of selling and “trading up” to a bigger or a better home had better be quick now if they want to get the best deal.
    • 23 May 2018
      The new Loftus Park development in Arcadia is really going to boost the demand for homes and rental accommodation close by and the neighbouring suburb of Sunnyside, says Gerhard Kotzé, MD of estate agency group RealNet Holdings.
    • 23 May 2018
      The importance of correctly pricing a property for sale is more imperative than ever. This is according to Debbie Justus-Ferns, divisional manager of Renprop Residential Sales, who says that despite this crucial selling fact being emphasised so often, in the current market, many sellers are still expecting unrealistic prices for their homes which is having a negative impact on the ultimate sale price.
    • 22 May 2018
      Extreme weather appears to be the new normal, evident by the volume of insurance-related disputes reaching the industry watchdog’s desk. To avoid a situation in which your insurer refuses to pay up, you should proactively ensure that your home is well-maintained and ready for whatever winter has in store.
    • 22 May 2018
      As the impact of technology on the real estate industry becomes more significant, it is clear that there is a need for an objective look at not only traditional real estate models but also online and other alternative low-commission real estate agencies, to examine what they offer and what their impact might be.
        
    X
    Subscribe to the MyProperty Newsletter

    Name  
    Last Name  
    Email Address  
    Email Frequency
    select
    X
    Share this Page

       
    For Sale Property
    Rental Property
    More Options
    About
    Connect with us
    FEEDBACK