While many begin their property journey under their individual name due to simplicity and tax benefits like negative gearing, growing your portfolio can bring challenges such as:
- Borrowing capacity limits
- Higher land tax due to multiple properties held under one name
- Significant capital gains tax when selling
Using a trust structure may help overcome these challenges:
- Boost borrowing capacity: Some lenders assess trust loans independently, keeping existing loans separate.
- Land tax savings: In certain states, land tax may be assessed per trust rather than cumulatively.
- Tax efficiency: Family trusts allow income or capital gains distribution to family members with lower tax rates, reducing your overall tax liability.
Additionally, purchasing property through a trust offers other benefits, such as:
- Asset Protection: Safeguard your assets from legal claims or creditors.
- Estate Planning: Simplify the transfer of property to future generations.
However, trusts have their drawbacks:
- Setup and ongoing costs: Establishing and maintaining a trust can be expensive.
- Limited initial borrowing capacity: Many lenders don’t apply negative gearing for trust loans.
- Tax trade-offs: You may forgo negative gearing benefits initially but gain long-term advantages if the property becomes positively geared.
While trusts offer unique advantages, they come with complexities. It’s essential to seek advice from a financial advisor or accountant to determine if a trust aligns with your property investment goals.
Need help? Let us guide you through your options and help you build the right strategy. Chat with us today!
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