Real Estate Investor Magazine South Africa June 2015 | Page 28

STRATEGIES

The Business Of Buy-To-Let
The buy-to-let business structure
BY KOOS DU TOIT

O

ne of the most important decisions to make
when starting a business is the type of legal
structure to use, as this will impact the taxation
of the business, the amount of paperwork required, the
ability to raise money and the personal liability the
business owner faces.
There are numerous business structures to choose
from including, for example, a private (Pty Ltd)
company, a partnership or a sole proprietorship. For a
number of pertinent reasons, P3 Investment Group’s
investors use a trust as the legal structure for their buyto-let property business.
What is a trust?
A trust is a simply a legal entity, established by a founder
for the safekeeping and management of trust assets
by the trustees appointed by the Master of the High
Court for the benefit of the nominated beneficiaries.

“A trust will allow significant
savings on income tax.”
Why use a trust?
Of particular importance to buy-to-let property
business owners, a trust is a structure through which
more mortgage bonds can be obtained than will be
possible in your personal name. Trusts, as separate
legal entities, are not subject to the provisions of the
National Credit Act.
In addition, there are some compelling financial
benefits. If structured and managed correctly, a trust will
allow significant savings on income tax. Furthermore,
trusts, unlike people, cannot die and is therefore not
liable for capital gains tax, estate duty and executor’s
fees when you die.
Perhaps most importantly, a trust will ensure that the
buy-to-let property business continues to generate
an income, as well as capital appreciation, long after
your passing, creating a legacy of wealth for future
generations. No other entity can preserve and dispense
the benefits of a legacy quite as flexibly and securely as
a trust, through which the benefits of your life’s work
can be distributed in a precisely determinable manner.
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JUNE 2015 SA Real Estate Investor

Manage risk
A trust also offers significant risk management benefits.
A buy-to-let property portfolio, built on a foundation
of the right trust, offers solid asset protection.
When a trust fully owns a property, it no longer
belongs to you. This provides protection against any
actions that may be taken against you in your personal
capacity, for example, insolvency, divorce, business
volatility, partnership disputes and other business and
financial risks.
Your personal assets can be safeguarded in a trust
separate from the trust in which the buy-to-let
properties are acquired. In the unlikely event that the
buy-to-let property portfolio fails or becomes unable
to pay its debts, creditors cannot touch your personal
assets. In addition, any liability claims against the
property-holding trust will not place your personal
assets at risk, because the claim can only be made
against the property-holding trust itself. Furthermore,
when you pass away, the property portfolio does not
become part of your deceased estate, but continues
uninterrupted, providing an ongoing passive income to
the stipulated beneficiaries.
Easy, cost-effective to manage
Just like any other legal structure, trusts cannot be
set up by just anyone. The trust, as the foundation of
your buy-to-let property business, must be set up and
managed professionally. A number of crucial issues
must be adhered to, to avoid the possibility of a court
declaring a mismanaged trust invalid.
Fortunately, all the tools you need are readily
available through professional property investment
organisations. For example, P3’s experienced and
specialised trust experts will help you set up trusts
tailored to your particular needs and circumstances.
In addition, P3’s Trust Management Kit has been
developed specifically to assist members to understand
the intricacies of how a trust works and to enable you
to manage your trusts correctly, covering all the issues
you need to know to safeguard your financial future
and that of your heirs - even beyond your lifetime.

RESOURCES
P3 Investment Group
www.reimag.co.za