Everything you need to know about buying property in a trust

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Buying property in a trust can offer tax benefits and excellent asset protection for investors

When you buy an investment property, the ownership structure you choose can have significant implications for your tax bill and your overall financial situation. Trusts are becoming an increasingly popular ownership structure for Australian property investors because of the tax benefits, asset protection and estate planning advantages they offer.

But property trusts can be a confusing topic to wrap your head around. So let’s take a closer look at what a trust is and how you can buy property through a trust.

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How does a trust work?

A trust allows a person or company to own assets on behalf of someone else or on behalf of a group of people. The trustee is the person that owns or controls the asset, while the beneficiaries of the trust are the person(s) for whom the asset (e.g. a property) is owned.

There are three main trust structures property investors use: unit trusts, family discretionary trusts and hybrid trusts. Under a unit trust structure, the assets the trust owns are split up into portions known as “units”. The trust beneficiaries then own these “units” in a similar way to that of shareholders owning shares in a company – their share of the income and expenses is proportional to the number of “units” they own.

A family discretionary trust is probably the most common type of trust for property investors. Also referred to simply as a family trust or a discretionary trust, this type of structure is usually set up to hold a family’s assets. The trustee can use their discretion to distribute the trust’s income and assets to the beneficiaries, allowing the family members to take advantage of tax benefits.

A hybrid trust is a combination of a unit trust and a family discretionary trust. It allows beneficiaries to hold units in the trust, while at the same time giving the trustee the power to distribute income as they wish.

Why buy property in a trust?

The biggest advantages to buying an investment property through a trust structure are:

  • Asset protection. One of the main features of a trust structure is that the investment property is held in the trustee’s name, not your own – so in most cases, the trust’s assets are protected from creditors if one of the beneficiaries goes bankrupt or is the subject of legal action.
  • Tax benefits. Family trusts allow the trustee to split the income between beneficiaries in the most tax-effective way each year. If the investment property is held by the trust for more than a year, you can also take advantage of a 50% capital gains tax (CGT) discount.
  • Estate planning. Each trust features a trust deed – a document which outlines the rules the trustee must follow and what will happen to each beneficiary’s share of the trust’s assets upon their death. This simplifies the estate planning process and can help avoid any messy legal battles within families.

If you’re interested in setting up a trust to purchase an investment property, you may also want to research the trust home loan options available.

Things to be wary of when buying property using a trust

There are a couple of key issues to be aware of when you’re considering buying property using a trust. Firstly, if you individually own an investment property and you decide to transfer it into a trust, the trust will typically need to pay stamp duty and the individual will be liable for CGT.

Secondly, if the trust makes a capital loss or a rental loss on an investment property, there is no option to offset that loss against other investment income. This means you won’t be able to enjoy any of the benefits of negative gearing.

Choosing the right ownership structure for your investment property is a complicated and confusing task. To find out whether a property trust is right for you, ask your accountant or financial planner for advice specifically tailored to your situation.

Property trusts

Setting up a family or unit trust to buy an investment property should not be confused with professionally managed property trusts. Also known as property funds or property syndicates, these trusts allow investors to buy “units” in an investment property or multiple properties, with the fund managed by a professional investment management firm.

The money you invest remains in the property trust until the property is sold and the profits are distributed among the investors. Investors also receive distributions of income at fixed intervals, similar to the way companies pay dividends to shareholders.

You can choose to invest in an unlisted property trust, or a listed property trust which is listed on the Australian Securities Exchange (ASX). Whatever you decide, doing your research before choosing a trust structure for your property investment will help you make sure it works for you

Compare investor mortgage rates

Rates last updated August 22nd, 2018
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Name Product Interest Rate (p.a.) Comp Rate^ (p.a.) Application Fee Ongoing Fees Max LVR Monthly Payment Short Description
3.89%
4.24%
$0
$0 p.a.
80%
Sharp interest only package rate
Fix your rate and minimise repayments for 2 years with this interest-only investor mortgage.
3.99%
3.99%
$0
$0 p.a.
80%
Special discounted interest rate
Get a discounted, low-fee investor loan from a convenient online lender. 20% deposit required.
3.98%
3.98%
$0
$0 p.a.
70%
Requires a 30% deposit
Investors can get a 100% offset account and a low rate if they have a big deposit. 100% online application process.
3.91%
3.92%
$0
$0 p.a.
80%
Add an offset account for $10 a month
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3.97%
3.99%
$0
$0 p.a.
80%
Competitive investment package loan
Package your owner occupied loan with investment loan and receive a discounted investment rate. 100% offset account included.
4.09%
4.87%
$0
$395 p.a.
90%
10% deposit option available
Buy your investment property and set your repayments for the first year. Available in QLD, NSW and ACT only.
3.93%
3.94%
$0
$0 p.a.
80%
Competitive investor rate with plenty of features
This investment loan keeps fees low, has a sharp interest rate and comes with a 100% offset account.
3.99%
4.14%
$0
$0 p.a.
70%
Competitive investor mortgage for borrowers with a 30% deposit.
4.29%
4.31%
$0
$0 p.a.
80%
Flexible, low fee mortgage
Investors will pay no application or ongoing fees for this interest-only loan.
4.18%
4.18%
$0
$0 p.a.
80%
Competitive investment mortgage
Investors get a 100% offset account and pay no application or ongoing fees on this loan from an innovative online lender.
3.99%
3.99%
$0
$0 p.a.
70%
Save on fees with this investor mortgage
Investors with a 30% deposit can get this low rate loan to fund their property portfolio.
4.29%
4.31%
$0
$0 p.a.
80%
Simple, flexible investment product
A simple, variable rate investor loan from an online lender that keeps fees to a minimum.
3.99%
4.62%
$395
$0 p.a.
80%
Flexible fixed investment loan
Investors can enjoy flexible repayments and an easy application process with this pioneering online lender.
4.24%
4.68%
$0
$0 p.a.
90%
Investor loan with a small deposit option
Fix your investment repayments for 1 year. You can get this loan with a 10% deposit. Available in QLD, NSW and ACT only.
4.13%
4.14%
$0
$0 p.a.
90%
Available with a 10% deposit
Access a fee-free offset account and a special interest rate for investors.
4.14%
3.96%
$0
$0 p.a.
80%
Low fee investor mortgage
Investors can go from application to full approval in as little as 20 minutes with this innovative online lender.
4.18%
4.19%
$0
$0 p.a.
80%
Line of credit for investors
Investors can easily access their equity using BPAY, a debit Master Card or cheque book with this interest-only line of credit.
4.31%
3.95%
$0
$0 p.a.
80%
Rapid online application process
A variable interest-only loan for investors. Fast application, low fees, optional offset account. 100% online lender.
4.14%
4.17%
$0
$0 p.a.
80%
Competitive rate for investors
Investors can enjoy flexible repayment options and pay no application or ongoing fees.
3.94%
3.92%
$0
$0 p.a.
80%
Add an offset account for $10 a month
Lock in your interest rate for 2 years and enjoy flexibility, an optional offset account and a fast online application process.
4.29%
4.27%
$0
$198 p.a.
70%
Lock in your investment rate for 3 years
Fund your property portfolio with this fixed rate mortgage which includes a 100% offset account. 30% deposit required.
3.84%
3.91%
$0
$0 p.a.
80%
Flexible low fee mortgage
Enjoy a fast application process and flexible repayment options with this fixed rate mortgage for investing.

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8 Responses

  1. Default Gravatar
    May 17, 2018

    I would like to know how to get out of a family trust on a property. Also, we are divorced. I do not live on the property.
    Please help

    • finder Customer Care
      JeniMay 17, 2018Staff

      Hi Bell,

      Thank you for getting in touch with finder.

      Regarding your enquiry, I suggest that you speak to your lawyer or contact a Family Dispute Resolution provider to help you sort out your property arrangements and understand your options.

      I hope this helps.

      Have a great day!

      Cheers,
      Jeni

  2. Default Gravatar
    February 7, 2018

    Hi, my partner and I already have a discretionary trust. We are looking to purchase a property within the trust with my parents. Can we add my parents as trustees to an already established trust then seek an appropriate loan to suit?

    • finder Customer Care
      JoshuaFebruary 22, 2018Staff

      Hi James,

      Thanks for your question.

      Basically, with discretionary trust, the “Appointor”, which is named in the Trust Deed has the power to remove and appoint trustees. One of the occasions an appointor can add/remove a trustee(s) is when the trustee dies, becomes bankrupt or is incapacitated. I would suggest that you seek legal advice on this if your parents can be added as trustees or speak to your “Appointor”.

      Meantime, we have a helpful guide on this page that you might want to read. It will give you more idea about discretionary trust, its advantage and what a trustee can have in terms of discretionary powers.

      As for seeking out a loan, there are trust home loans available in the market that you can actually apply. You’d be best to speak to a mortgage broker who can consider your circumstance and offer you lending options. You can also check the guide on this page about trust home loans for further info.

      I hope this helps. Should you have further questions, please don’t hesitate to reach us out again.

      Have a wonderful day!

      Cheers,
      Joshua

  3. Default Gravatar
    RaidoOctober 15, 2017

    I have set up a Family Trust for rental property holding. I have applied for TFN for tax return. Do I also need to apply for ABN?

    • finder Customer Care
      ArnoldOctober 16, 2017Staff

      Hi Raido,

      Thanks for your inquiry

      Yes, you do. An Australian Business Number (ABN) is a unique 11 digit number that identifies your business to the government and community. An ABN doesn’t replace your tax file number, but it is used for various tax and other business purposes.

      Hope this information helps

      Cheers,
      Arnold

  4. Default Gravatar
    HerculesMay 25, 2017

    Hi,

    If I own a property in a trust, can I use equity on this to buy another property?

    Thanks

    • Default Gravatar
      DanielleMay 29, 2017

      Hi Hercules,

      Thank you for contacting finder.com.au we are a financial comparison website and general information service we are not mortgage specialists so can only offer general advice.

      Depending on the lender, they may or may not accept your property in a Trust for security to buy another property. Generally, you’d need consent in writing if you will use a third party security. You can find on this article on how you can use a property as your security when obtaining a home loan.

      Moreover, to get a specialised advice, you’d be best to contact a mortgage broker to discuss your lending needs and in-kind your borrowing options.

      I hope this helps.

      Cheers,
      Danielle

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