FAQ – Putting property in a trust or not

A taxpayer wants to know if it is better to register a property in his own name or in a trust. He writes:

I am buying a holiday home from a family trust, using the cash part of the dissolution.

We have a dormant trust with no assets. Is it better to register the property in my name or in the trust?

Tony Davey of Tony Davey Associates responds.

There are pros and cons to each type of ownership.

From a capital gains tax (CGT) perspective, the following should be considered:

The R2m CGT exemption upon disposal of a property only applies if, in essence, both the following criteria are satisfied:

Firstly, the property must be lived in as your primary ordinary residence and secondly, it must be owned by natural persons.

It follows that a holiday home does not qualify for the CGT exemption, even if it is held in a natural person’s name, as it is not a primary residence.

Therefore, any gain upon its disposal is subject to CGT, whether held by a trust or in one’s own name.

Although a trust has a higher CGT effective rate (26.6%) instead of a natural person’s effective rate (6.5 to 13.3%), a gain can be attributed by a trust resolution to a natural person beneficiary.

The result will be that the trust is merely a conduit and the lower natural person rate applies.

Viewed from an estate planning perspective, trust property does not attract the 20% estate duty imposed upon a natural deceased person’s estate.

Thus, to the extent the property appreciates above the loan value – being the sale value – (which can be interest free in this domestic context), a saving of estate duty will result.

Further to this, assets in a trust cannot be seized to settle a natural person’s debts and thus asset protection exists to the extent of the value above any loan claim.

– Fin24

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