Is it better to purchase a property in your individual name or via a trust structure?

Tim Russell | August 10, 2018

When it comes to property investing sometimes I think we can complicate things a bit. I often hear investors get really focused on buzz words like negative gearing, depreciation, yields and purchasing structures that they can lose track on what really matters – the investment itself.

Today, I want to focus on one of those buzz words and clear the air on whether you would be better off buying a property in your individual name or via a trust.

The case for the trust

For me, when it comes to purchasing a property via a trust there are two big reasons why you would consider it:

1.     Asset protection

When it comes to asset protection, I’m mainly thinking about self-employed people. Being a director or majority shareholder of a company puts you and your personal assets at risk if someone was to sue your business.

Now, whilst it’s not a foolproof solution, owning assets via a trust structure creates a line of separation. As such, if you were entangled in a litigation matter, assets which you hold via a trust would potentially not be up for grabs.

2.     Estate Planning

As a father, nothing gets me more excited than the thought of transferring my assets to future generations of my family when I eventually pass away (guess I need to have other activities in my life besides this gig!).

Depending on the type of trust you have set up (most common are discretionary or unit), it’s possible to add or take away individual beneficiaries from your trust. Doing this means you never have to sell an asset to another family member, which would trigger a stamp duty event.

Why you might be better off buying in your individual name 

Like any decision in life there are pros and cons to consider and two of the big cons of buying a property in a trust are:

1.     Losses stay within the trust

For many people, one of the big advantages of purchasing investment properties are the tax advantages that come along with them. Being able to claim interest, depreciation and expenses allow for a paper loss, which you’re then able to offset against your personal income, thereby increasing your tax refund.

Inside a trust, whilst profit can be distributed to the beneficiaries, the same cannot be done for losses. This means that any loss you might incur from your property has to stay within the trust. i.e. not the best tax play.

2.     No discounts on land tax

Every state allows for individuals to hold a certain value of land on your investment properties tax free. In NSW, that threshold is $629,000. Once your total land is above that amount you start to pay land tax every year. Because most investors only have one or two properties, many never actually pay this fee.

However, if you own a property via a trust, there’s no concession on land tax so you’ll be paying full freight from day one.

So those are the major things to consider when deciding to buy a property in your individual name or via a trust. Essentially, I think it comes down to what is most important for you. If protecting yourself from litigation outweighs any tax deductions you might receive from the property, you should probably consider buying via a trust.

However, if getting as much tax deductions as possible is important for you and you don’t think you’d ever get sued in your job, then buying in your individual name might be the way to go.

In any event, before proceeding down either avenue, get advice from a good solicitor or an accountant. Either of these guys will have to set up the trust anyway so you may as well get some advice from them as to whether this makes sense.

Kind regards,

Tim Russell