Should You Buy Property in a Trust or Personal Name?

When deciding whether to purchase a property under a trust in Australia, the decision typically hinges on several financial, legal, and taxation factors. There's no one-size-fits-all rule, such as "wait until your 5th or 6th property," but rather a set of considerations that vary depending on your investment strategy and long-term goals.

Here's an overview of the key factors influencing the decision to use a trust versus purchasing property in your personal name. 

Reasons to Buy Property Under a Trust

1. Tax Planning

A trust can be used to manage income distribution more effectively. For example, if you have multiple beneficiaries (e.g., a spouse or children), the trust can allocate income to those in lower tax brackets, potentially lowering the overall tax liability of the family. This is particularly useful for high-income earners or those looking to reduce their tax exposure.

2. Estate Planning

Trusts allow for more efficient estate planning. When you pass away, assets held in a trust do not have to go through the lengthy and costly process of probate (the legal process of settling an estate). Instead, the trust’s terms dictate how the assets are distributed. This can help ensure that assets are passed on according to your wishes.

3. Capital Gains Tax (CGT) Concessions

In certain circumstances, holding property in a trust structure might allow you to access capital gains tax (CGT) concessions. For instance, family trusts can distribute capital gains to beneficiaries in lower tax brackets, potentially reducing the CGT payable.

4. Separation of Business and Personal Assets

If your investment property is related to a business or if you want to separate your personal wealth from your investment portfolio, a trust can be a strategic way to do so.

5. Asset Protection

A trust can provide asset protection by separating the ownership of the investment property from the personal assets of the individuals involved. If you hold property in your personal name and face legal action (e.g., due to personal financial difficulties or business liabilities), creditors may be able to target your assets. Depending on how it was set up, a trust can help shield your property from such claims, as it is held in the trust's name, not your personal name.

IMPORTANT NOTE: Asset protection is complex and depends on various legal factors. If asset protection is a primary concern, it is crucial to consult with a Legal Expert specialising in Trust Law and Bankruptcy Law before setting up a trust to ensure proper structuring and compliance with applicable laws.

Reasons to Buy Property in Your Personal Name

1. Simplicity

Purchasing property in your personal name is much simpler, especially when you're just starting out. Trusts involve additional administrative requirements, such as preparing trust deeds, appointing trustees, and keeping records of distributions. There's also the ongoing cost of administering the trust.

2. Capital Gains Tax Exemption for Primary Residence

If you buy property in your personal name and it becomes your primary residence, you may be eligible for a capital gains tax exemption when you sell. This is a key advantage if you're buying your own home, but it doesn't apply to investment properties.

3. Negative Gearing and Tax Deductions

Negative gearing can still be applied to properties owned in your personal name, meaning you can offset losses from the investment property (e.g., mortgage interest, maintenance costs) against your other taxable income. While trusts can also claim deductions, some structures may not be as flexible or straightforward as personal ownership in this regard.

4. Lower Ongoing Costs

Trusts come with ongoing compliance and administrative costs (e.g., trustee fees, accountant fees, and legal costs). For a property investor who is not seeking complex estate or tax planning strategies, holding property in personal name is more cost-effective.

Summary

In summary, the decision to buy property under a trust often depends on your level of investment, tax planning needs, and long-term goals. If you are starting out and purchasing a single property, holding it in your personal name may be more straightforward and cost-effective. However, as your portfolio grows or if you have more complex financial needs, a trust can offer some advantages in terms of tax planning, asset protection, and estate planning.

General Advice Disclaimer

The information provided on this website is intended for general informational purposes only and should not be construed as professional advice. The advice and recommendations on this site are not intended to replace individual consultations with a qualified professional.

The application of tax, accounting, and business advice varies depending on personal circumstances, and the laws, rules, and regulations are subject to change. Therefore, readers should not rely solely on the content provided, and should always seek professional guidance tailored to their specific needs before making any financial, tax, or business decisions.

W&G Taxation and Accounting accepts no responsibility for any loss or damage, including but not limited to indirect, incidental, consequential, or punitive damages, arising from actions taken or not taken based on the information provided on this website. We recommend that you consult with us directly for advice suited to your unique situation.