Transferring IP to trust

Hi,

- I own with my wife 1 IP which was previously my PPOR, which rents for $750pw and is valued at $800k
- Loan at $400k but only $250k is deductible as I made redraws whilst I was living in it
- I am currently renting but wish to buy a new PPOR
- My salary $200k / Wife salary $0

My goal is to unlock equity for the PPOR/increase deductibity of loan and have been professionally advised to transfer the IP to a trust and max the loan:
- Based on market value $800k i could borrow up to $640k
- Pay stamp duty of $30k
- After paying out existing loan I net $240k for the new PPOR.

I was ready to pull the trigger on this strategy but what has me stumped as a layman is that the losses are trapped in the trust. Annual income will be $39k but expenses will be ~$30k interest + $15k fees/depreciation/rates etc so i'll be taking a loss in the early years of approx $5k+. It will also take approx 5-6 years to recoup costs on the stamp duty.

Has anyone else gone through a similar processs and do I have any other alternatives (besides doing nothing with IP and using it as security to buy the new PPOR).

Thanks in advance!

 

There is a way to do this and to claim the deductions = a fixed unit trust.

 

The UT strategy may encounter difficulties with finance these days. Most lenders require that the owner of the property (trustee co) also be the borrower which leaves the interest inside the trust as in a disc trust. The UT works best where the individuals borrow for the purpose of buying units in the UT and then the trustee gives the bank security for a loan to MR & Mrs (example).

This can be addressed by say a 80% borrowing by the trustee and the balance of borrowing using equity release to the individuals who then use those proceeds to buy interest in the trust.. It can be a bit limiting however as its not a 100% unitholding interest.

The key message is that all trust acquisitions require very diligent consideration of the finance.

I believe STG are still OK with a company giving security and the borrowing is made to individuals with guarantees etc..

 

Another alternative is a spousal sale. One of you sells to the other.

Or just sell outright.

 

Still a few lenders which will do it Paul - the challenge is using a lender which accepts unit trusts + the borrower/guarantor relationship. Thankfully one of the good go to's in this area is high servicing, accepts UT's and flexible with the noted borrower - needless to say we utilise them a lot.