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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