When purchasing property, it’s vital to select the right ownership entity from the outset. Making changes later on could be costly, as transferring ownership is deemed to be sale and will be subject to stamp duties. Let's explore the pros and cons of owning property in your personal name, a trust, or a company.

PERSONAL NAME

Owning property in your personal name has certain advantages, particularly if it’s your primary residence. Here's why:

* Tax Benefits for Primary Residences: When you sell your home, any profit is exempt from capital gains tax (CGT)—a huge win for your financials.

* Investment Properties: If you own additional properties in your name, these are treated as investments, which means they’re subject to capital gains tax. However, you can negatively gear these properties, which helps reduce your taxable income.

TRUST

A trust structure involves one party (the trustee) holding the property on behalf of another (the beneficiary). This setup offers a number of compelling advantages and some drawbacks.

Advantages of a Trust:

* Asset Protection: As the property isn’t technically in your name, it’s shielded from creditors in the event of legal action.

* Tax Efficiency: The ability to distribute income and capital gains across beneficiaries (such as family members) means you can allocate funds to individuals in lower tax brackets, potentially lowering your overall tax liability.

* Capital Gains Tax Discount: Trusts allow individuals to benefit from a 50% capital gains tax discount when selling a property.

Disadvantages of a Trust:

* High Setup and Maintenance Costs: Trusts require separate tax returns and ongoing administrative work, which can lead to higher accounting fees.

* No Negative Gearing Benefits: Trust structures don’t allow you to distribute losses, which means you lose out on negative gearing advantages like depreciation.

* Land Tax and Stamp Duty: In most cases, a trust won’t qualify for land tax exemptions, resulting in higher costs.

Additionally, getting a mortgage under a trust structure can be more complex due to the extra paperwork involved.

COMPANY NAME

Purchasing property through a company offers some similar protections to a trust but with distinct differences.

Advantages of a Company:

* Limited Liability: Like trusts, holding property in a company can protect the asset from personal liability, unless you’ve signed a personal guarantee or are a shareholder.

* Strategic Tax Planning: Some sophisticated investors structure their portfolios so that the company owns the property while a trust holds the company shares, adding another layer of tax efficiency.

Disadvantages of a Company:

* Higher Capital Gains Tax: Unlike a trust, selling property held by a company incurs a flat 30% capital gains tax, which is higher than most personal or trust structures.

* Profit Distribution: Extracting profits from a company can be cumbersome, as it typically involves paying dividends, which can attract further taxes.

* Cost and Complexity: Similar to trusts, setting up and maintaining a company incurs additional costs and requires separate tax returns.

Many seasoned investors opt to combine a company with a trust, allowing the property to be shielded from inheritance tax while still optimising tax benefits.

Ultimately, the decision of which structure to use depends on your financial goals, investment strategy, and tax considerations. Always consult with a financial advisor or tax specialist to ensure you're choosing the best structure for your needs!

This is not financial or legal advice. Please consult your professional financial and legal advisors before making any decisions for yourself.