Professional Accountant, Gavin Bacon discusses the benefits – and shortfalls – of having your assets in a Trust in terms of Capital Gains Tax.
Well to be honest it can’t really – especially if you want to put your residential property into a trust. The main reason for setting up a trust is to protect your assets for a loved one. For example – what happens to our children if we pass away? What happens to our house? What you can do is put your property into a trust to create “longevity”. It means that if you had to die, then your property is relatively unaffected by your passing – especially if you have insurance that settles the outstanding bond. The property continues in existence – your children can choose to live in the house and the house is protected from creditors. However, the tax implications are a lot different than if you had the property in your personal names.
Tax Implications of Property in a Trust
Individuals who own their property in their own names and also live in the property have an exemption of R1.5 million of the gain made upon disposal (for properties sold for R2m or less), then what is left over – i.e. over and above the R1.5m gain, is taxed at an inclusion rate of 25%. What this means is that – if you sell your property for R1.9m and you make a gain of say R1.6m, then you will be only taxed on 25% of R100 000 i.e. on R25k, this is then taxed at your going tax rate – i.e. it is very “small”.
Trusts on the other hand have no exemption at all, so in the same example above you would be taxed on the full R1.6m and for trusts, at an inclusion rate of 50%. So the trust will be taxed on R800 000!!
So in a nut shell and in this limited example, there is no real savings from a CGT angle if kept in a trust.
Trusts however, have very many other advantages – one is mentioned above – that of protection of assets – so one needs to look at what your needs and objectives are when making decisions. Tax Consultants like myself, can help you with these decisions – when ALL the facts are looked at.
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