When buying a property, for rental or personal residence, you need to consider which structure will be best for you. Our circumstances are all different, so there is no one-size-fits-all solution.
Here are the key considerations you need to keep in mind when deciding on an ownership structure:
Asset protection: In your personal name, your assets are the least protected. A Trust offers the best protection.
Taxation: Taxation should not be your only consideration when choosing an ownership vehicle, but if you do not take tax into account, it can become costly.
Multiple parties: When more than one family group purchases a property together, things become more complex, and ownership in individual capacities may not be appropriate anymore.
Succession and exit strategy: Who will inherit and manage the property after death? Should your minor children inherit the property, this point is paramount.
Costs and complexity: Naturally, complex structures are more expensive, so keep it as simple as possible. For instance, it will be more cost effective to own multiple properties in one company versus registering a separate company for each property.
Below is a comparison of the different ownership models, including individual, company and trust ownership:
| Description | Individuals | Companies | Trusts |
| Annual Administration to remain compliant | No | Yes | Yes |
| Tax rate 2021 *If the income from the Trust is distributed to the beneficiaries they will be taxed at their own marginal tax rates |
18 – 41% | 28% | 40% |
| Continuity after death. An individual dies after death, but a Trust or company lives on | No | Yes | Yes |
| Property Income & Expenses included in Tax return (profit/ losses) | Yes | Yes | Yes |
| Can you get a 100% Bond from the Bank | Yes | No | No |
| Bank likely to request signed Surety for the Bond, especially on the first property? | No | Yes | Yes |
| Your estate can transfer the property to an heir such as your spouse or children | Yes | N/A | N/A |
| Primary residence deduction (R2m) The first R2 million of a capital gain or loss on disposal of a primary residence must be disregarded. This concession, known as the primary residence exclusion, means that most individuals will not be subject to CGT on the sale of their primary homes. |
Yes | No | No |
| Capital Gains Tax charged on Death? | Yes | No | No |
| Can creditors sell off the properties if the individual becomes bankrupt? | No | No | Yes |
| Save on estate duty, transfer duty, executor’s or conveyancer’s fees, or capital gains tax (CGT) | No | No | Yes |
| Security against minors, illness, etc. In the event of death, or other illness, like insanity, are minors protected against loss of hard earned legacy? |
No | No | Yes |
| Set up costs | 0 | R2k – R4k | R4k – R7k |
| Stringent control requirements – Board of trustees, Annual submissions etc. | N/A | Yes | Yes |
| Transfer duty payable on transfer of property? (2020 – 2021) | Same | Same | Same |
| Do you still have control over the properties? | Yes | Yes | No |
| What is the best route for persons with only one property? | Best | ||
| What is the best route for multiple persons jointly investing in property? | Best |