Written by: J’Retha van Rensburg

30 September 2024

Purchasing property is a significant milestone, whether for personal use or investment. However, navigating the complexities of ownership structures can be overwhelming. Should you use a trust or a company to acquire your immovable property? This decision impacts tax liabilities, estate planning, and administrative responsibilities—factors that can shape your financial future.

At Burger Huyser Attorneys, we understand the nuances of estate planning and the importance of choosing the right entity. This article examines the advantages and disadvantages of trusts and companies, helping you make an informed decision tailored to your unique needs.

What Are the Advantages And Disadvantages Of Purchasing A House In The Name Of A Trust?

Purchasing property in the name of a trust comes with various implications, including:

  • Is a trust liable for transfer duty? Yes, similar to other legal entities, a trust is liable to pay transfer duty when purchasing property. This duty is calculated on the same sliding scale used for individuals and companies.
  • Is a trust liable for Capital Gains Tax (CGT)? When the property is sold, the trust is liable for CGT. Trusts are taxed at an effective CGT rate of 36% on the capital gain, as the inclusion rate for trusts is 40% and the tax rate is 45%. A key disadvantage here is that trusts do not qualify for the primary residence exclusion of R2,000,000 as set out in the Eighth Schedule of the Income Tax Act 58 of 1962. This exclusion applies only when a natural person disposes of a primary residence.
  • Is a trust liable for income tax? If the property generates rental income, the trust is taxed on any retained income that is not distributed to beneficiaries at a rate of 45%.
  • Is a trust liable for estate duty? Property held in the name of a trust does not form part of the estate of the founder, trustees, or beneficiaries, whether it be moveable or immovable property. This structure can therefore reduce estate duty liabilities.
  • Is a trust liable for administration? Trusts require ongoing administration and compliance with trust laws, including the filing of annual tax returns and financial statements, similar to any other legal entity.

What Are The Advantages And Disadvantages Of Purchasing A House In The Name Of A Company?

Purchasing property through a company has its own set of pros and cons:

  • Is a company liable for transfer duty? Yes, similar to a trust, a company must pay transfer duty on property purchases, and the amount is based on the property’s value.
  • Is a company liable for Capital Gains Tax (CGT)? When the property is sold, the company is liable for CGT. However, companies are taxed at an effective CGT rate of 22.4% on capital gains, as the corporate tax rate is 27%. This is advantageous compared to trusts, as companies can save up to 13.6% in CGT.
  • Is a company liable for income tax? If the property generates rental income, the company is taxed on the profit at a corporate tax rate of 27%. Importantly, the company is only liable to pay income tax on profits realised during the financial year.
  • Is a company liable for estate duty? As a juristic entity, a company has its own legal personality. Property held by the company does not form part of an individual’s estate, offering an estate duty benefit similar to that of a trust. However, if you are the sole shareholder of the company, the value of your estate may still reflect the property’s value, which can increase estate duty liability.
  • Is a company liable for administration? Companies require significant administration, including compliance with the Companies Act, filing annual tax returns, and preparing financial statements, similar to trusts.

What Are The Key Considerations In Deciding Between A Trust And A Company?

Here are the primary considerations to keep in mind when deciding which entity to use for purchasing property:

  • Estate Planning: Trusts are often preferred for estate planning, as they provide continuity and control over assets beyond the original owner’s lifetime. Trusts also avoid the issue of shareholding, which can be beneficial in terms of estate duty liabilities.
  • Tax Rates: Trusts face higher income tax and CGT rates compared to companies, which may make companies more tax-efficient for property purchases.
  • Administration: Both entities require compliance and administrative efforts, though the requirements vary slightly.

 The decision to purchase property in the name of a trust or a company depends on several factors, including tax implications, estate planning goals, administrative preferences, and the intended duration of property ownership. If the goal is to acquire a family home that will remain within the family for generations, a trust may be the more suitable option. On the other hand, a company might be more efficient for frequent property transactions or investments aimed at generating income.

For expert guidance in making this decision, consult a tax professional or financial advisor who can provide tailored advice based on your specific circumstances. Contact Burger Huyser Attorneys today for all your conveyancing, tax, and property-related needs to ensure an informed and advantageous choice!

Contact Burger Huyser Attorneys, and book a consultation.

To speak to one of our experienced attorneys in South Africa for immediate assistance, contact us on the numbers below:

Randburg call 061 516 6878; Roodepoort call 061 516 0091; Sandton call 064 555 3358;  Pretoria call 064 548 4838;

Centurion call 061 516 7117; Alberton call 061 515 4699; Bedfordview call 061 536 3223

DISCLAIMER: Information provided in this article does not, and is not intended to constitute legal advice. READ MORE