What Entity should you buy property under?
Once you are over the hurdle of finding a suitable property, often there is a confusion on whether you should buy it under your personal name or another entity. We hear friends and families talk about buying under a Trust or a Company name which often leads to a question, what is most suitable to your circumstances? Listed below are the key options that you need to explore
Personal Name
The default option used by even the most seasoned investors, just because its relatively simple. You can buy it under your name or in conjunction with a partner or a friend. It is relatively easier to get such deals financed too and you can get higher tax benefits by negatively gearing, which is excellent when you are sitting on a higher tax bracket. The benefit however reverses to a loss, if you have a positively geared property as it would increase your taxable income and you end up paying more tax.
Company Name
You can purchase a property in a company name, which is often a consideration when the businesses are trying to own their corporate premises. It is not a great choice when you are looking for an owner-occupied property or a residential investment property as there are limitations on the amount of Capital Gains Tax exemptions and funding can also be a little more challenging. The biggest risk however is that if you purchase the asset in the same name as your trading entity, you risk losing the property in case the company gets under any sort of legal battle
Trust
This option is becoming increasing popular as more and more Financial Planners, Accountants and Property Strategists are raising awareness on the key benefits such as tax benefits, asset protection, estate planning and so on. There are different types of trusts, and you need to speak to a specialist to ensure you set the structure that is most suitable in your circumstances. Keep in mind that it's not all rosy in this option as it does come with additional ongoing costs and not ever lender prefers to lend to a trust. Also, if negative gearing is core part of your strategy, it is not the same in a trust
Self Managed Super Fund
We are seeing a huge uptake in this option, especially from seasoned investors as it becomes a default choice once they run out of borrowing capacity for their normal lending. It allows you to purchase a property through a Self-Managed Super Fund, however you need to have a reasonable amount of Super in the fund before this option can be considered (speak to one of our SMSF specialists to understand the loan figures). There are a few considerations you need to be mindful of in this option as the interest rates are higher than the normal lending and there is a fair bit of compliance that you need to be aware of. The key benefits include a low tax rate: 15% on all money currently in the fund and 0% when it is taken out after retirement. You are not allowed to use the property for personal use though (to live in or have it as a holiday home).It is also strongly recommended that you speak to a Financial Planner to ensure this option fits your circumstances.
Above is only a high-level summary of the key points, our Financial Planner is there to help you make the best decision, so please feel free to reach out if need professional guidance.
