Purchasing investment property is an exciting move! However, you do need to choose the right ownership structure. This is as important as choosing the ideal property. Ownership structures affect your taxes, estate planning, and asset protection and are a key part of your long-term investment strategy. They also impact how smoothly you can expand your property portfolio. There are three core types of property ownership options in South Africa. You can own property in a personal capacity, through a trust, or through a company. Each choice has positives and negatives.
Buying property in your personal name
A large portion of investors buy their initial property under their own name. This is the easiest way of applying for financing.
Yet, personal ownership has some drawbacks. The property will fall under your personal estate. This will attract estate duty and Capital Gains Taxes and make the transfer of wealth to your loved ones more complex. Your property investment is also at risk of being seized by creditors if you encounter financial troubles. In addition, your rental income will be added to your other taxable income and could push you into a higher tax bracket.
For IGrow investors planning to grow a property portfolio, personal ownership may not be the ideal long-term solution.
Using a property trust in South Africa
A property trust is appropriate for estate planning in South Africa. The trust will own the assets, while the trustees manage them on behalf of the beneficiaries.
A key drawcard is continuity. The trust continues to run smoothly after the founder passes away. Assets held in the trust will not attract estate duty or Capital Gains Tax at all. Having a trust in place also offers an extra layer of creditor protection if the trust is set up properly with an independent trustee.
“By providing a structure that protects assets from erosion, manages them responsibly, and distributes them in line with family values, a trust ensures that wealth becomes a lasting legacy rather than a fleeting inheritance.” (Source)
Trusts do have strict legal and admin-related requirements. Trustees need to adhere to ongoing governance and reporting necessities. In recent times, SARS rules have increased beneficial ownership reporting regulations for trusts. (Source)
A property trust in South Africa offers valuable estate-planning benefits, yet it might not be the most practical way to hold multiple investment properties on its own, because assets held in a trust are taxed at a very high tax rate.
Why own property through a company?
Numerous seasoned investors own property through a company.
A company is perceived as a separate legal entity. This adds separation between your investment assets and your personal affairs. It also provides the groundwork for expanding your property portfolio. Companies are easier to manage when you’re purchasing multiple properties. They make it easier to add investors as owners or transfer ownership if needs be. Companies are taxed at only 27%, which is much lower than most personal income tax rates.
It is commonplace for banks to finance property-owning companies as they get their own affordability for loans from rental income and assets held, meaning you can apply for loans through your personal name AND through the company eventually, to further grow your wealth. This can make future property investment growth easier. Many investors choose to own property through a company because it offers this greater flexibility and scalability.
IGrow’s ideal ownership structure
At IGrow Trusts and IGrow Accounting Advisory, we generally recommend combining a company with a trust.
Our recommended structure is for the company to own the investment properties. The company’s shares are then held by a family trust.
This structure has some important benefits.
The company offers an effective vehicle where you can buy, finance, and manage investment properties. The trust will hold the company’s shares. In terms of estate planning, your beneficiaries can inherit the company and trust without needing to pay taxes when you die, as they are not part of your personal estate.
What about taxes? Your rental income can be taxed in the company and then distributed to the beneficiaries of the trust- who only pay tax at their individual marginal rate. If the beneficiaries are your children who have low incomes, or retired parents, they will pay a lot less tax on the distributed income than if you were paid it all yourself. This income can then cover expenses like care homes or medical aid for elderly parents, or your children’s school and university fees.
This type of structure also means continuity can be maintained after the trust founder passes away. It can positively affect succession planning and reduce disruptions. When run well, it will also improve asset protection.
This “company with shares held in a trust” structure is seen as a successful strategy for property investors with long-term wealth generation in mind. It means the structure can be flexible and it supports estate planning principles.
This is a very specialised set-up, however, requiring proper legal setup and ongoing accounting and auditing to stay on the right side of the law.
View our handy blog post about what happens to your estate when you pass away.
Making the right choice
There is no one-size-fits-all solution for every type of investor. The right property ownership structure in South Africa depends on your financial goals, family circumstances, investment strategy, and long-term objectives. You need to consider all property ownership options before making a decision.
Seeking professional advice is critical. SARS is continuing to improve trust compliance and beneficial ownership reporting requirements. Having the correct estate planning in place is more important than ever. (Source)
With IGrow Trusts and IGrow Accounting & Tax Advisory, we will help you select the right property ownership structure in South Africa. Our team will guide you through the whole process.
Contact an IGrow Investment strategist today, and we’ll help you build a structure that protects all your assets and nurtures long-term wealth goals.
FREQUENTLY ASKED QUESTIONS:
It depends on your investment goals, estate planning requirements, and long-term strategy. A lot of experienced investors use a company that owns the properties, with shares of the company held in a trust to combine scalability, asset protection,tax benefits, and estate planning benefits.
A property trust can protect family wealth from personal creditors and estate taxes, simplify succession planning, and ensure continuity after the founder passes away. Trusts are usually used for long-term wealth preservation and intergenerational wealth transfer.
Buying property in your personal name is often the easiest option for beginner investors. Yet, as your portfolio grows, you may need to consider alternative structures that offer improved estate planning and asset protection.
Owning property through a company can mean it’s easier to expand your portfolio, add shareholders, secure financing, and separate personal and business assets. It is often a preferred structure for investors with multiple properties, as companies are taxed on income at a flat rate of 27%
A well-established and managed trust may provide an additional layer of asset protection. However, trusts must be administered correctly and in compliance with South African legislation, with an independent trustee.
Yes. A common wealth-building structure is for a company to own the investment properties while the trust owns the shares in that company. This combines the operational and tax benefits of a company with the estate-planning advantages and tax benefits of a trust that distributes income to your dependents.
