ASK THE EXPERTS
ASK THE EXPERTS
3. The Tax Trap of Trusts Many investors believe that trusts are“ tax-free” vehicles. However, the reality is that unless you continually refinance your properties to unlock capital losses, profits retained in a trust are taxed at 45 %. This is a significant pitfall, particularly as you grow your portfolio.
Companies, on the other hand, are taxed at a lower rate of 27 %. With a company structure, you can also plan strategically by issuing dividends or loans, enabling more tax-efficient distributions through your Holdings Trust.
4. Legal Risks of Trusts One often-overlooked aspect of holding property in a trust is the legal risk. While a trust itself cannot be sued, the trustees can be personally held liable. This exposes you to potential legal action if a tenant sues or if a service provider seeks damages.
With a company structure, limited liability ensures that legal claims are directed at the company, not you personally. This separation protects both your personal assets and those held within the trust.
5. Flexibility for Tax Planning For investors already in high tax brackets, a trust that retains rental profits will face a hefty 45 % tax rate. Alternatively, profits distributed to beneficiaries can be taxed at their marginal rate, which may also be high.
A company taxed at 27 % provides more flexibility to manage taxes. Through strategic planning, you can control when and how dividends are declared or loans are issued, giving you the flexibility to optimize tax outcomes.
The Ideal Structure for Property Investors We recommend a combination of two core trusts: the Holdings Trust, which owns the shares in your property companies, and the Family Trust, which manages your personal wealth and lifestyle.
14 REI MAGAZINE MAY 2025