Investment Property & Ownership Structures
Picking the best ownership structure for your investment property is something that ' s often overlooked by prospective landlords , and for good reason . It ’ s an area that is generally poorly understood without seeking professional advice . There are a number of benefits to picking a structure outside the common sole proprietorship / partnership model , e . g . owning it in your own name .
The following outlines the four main types of property ownership in New Zealand . Each provides a different mix of limited liability , compliance costs and tax efficiency .
Your own circumstances will be unique compared to another investor so the following information is intended as a guide only . We recommend that you seek appropriate professional advice before settling on any particular ownership structure for your rental property .
Sole proprietorship / partnership
This is the most common form of property ownership in New Zealand . Your investment property is owned personally , with no limitation on personal liability .
The another advantage of sole proprietorship is that minimal compliance costs are associated with this popular structure .
Trust
Commonly known as a ‘ Family Trust ’, there are two main advantages to having your rental property owned by a trust .
Asset protection is the most obvious advantage as the beneficiaries of the trust don ’ t actually own the assets held in trust . The trustees do so on behalf of the beneficiaries .
We recommend you seek professional advice from your lawyer about the finer points of trust law and asset protection if this is your intention .
There have been recent changes in the trustee tax rate . From 1 April 2024 the trustee tax rate has increased from 33 % to 39 % to align with the top personal tax rate of 39 %.
A trust can provide you with the tax benefit of income splitting , where you can transfer taxable trustee income to beneficiaries ( limited to $ 1000 per year for beneficiaries 16 years or under ). The beneficiary will then pay tax on this income at their marginal tax rate , providing a tax advantage if their marginal rate is less than the trustee tax rate .
Landlords should seek professional advice before setting up a trust as the Trusts Act 2019 has implemented changes that can increase responsibility , compliance , and liability of all trustees so gaining expert advice in this area is encouraged .
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