Young(ish) family - How best to buy investment property? Individuals/ family trust/ company????

Big question: Should we buy in a company name, in a trust, or as an individual(s), joint venture or partnership?

Wife and I early 40s, work full time, have a strong equity position in our family home - NSW based. We have two kids 10 and 12 and are looking to invest in property and are figuring out a game plan to put our family in a strong position in the future.

Currently researching property market. Bank says we can borrow up to $1.3 million.... we are looking to spend under 750k (to remain under the land tax threshold).

Can anyone offer advice on whether to buy as a couple (two individuals) or to set up family trust etc. Someone told me that if our kids inherit the properties as individuals they pay CGT vs not with trusts... really we dont know enough and are trying to figure out what we should do.

Any other suggestions would be greatly appreciated!
Cheers!

 

Without understanding your circumstances and plans, who knows. You need to either pay a lawyer to do a fact find, or understand enough of it yourself to decide.
Gut feel, though, says that two employees just looking for one or two negatively geared IPs should just keep it simple.
Maybe start with a few basic property books?

A few things though.
The land tax threshold is based on land value, not market value.
So what happens after you hit the limit? Do you stop buying, or buy in other states?
Different entities may not may not get tax free thresholds.
Who is the 'someone' giving you tax advice? If they are not a lawyer, ignore them and get proper advice.
Inheritance throws up a whole new bunch of questions. Learn about testamentary trusts, for example. Get some good wills done.

 

Get some legal advice ownership structure has serious ramifications for the next 80 years potentially

 

Thanks for this!

 

I'm the only one that has voted, it seems and my vote is not what you should do, but what I would do.

I agree with everything that everyone has said though, if you're stuck, talk to a professional.

The reason I wouldn't bother with fancy structures as I'm fairly aggressive with investing and I believe that this would be easiest in my own personal name. Of course it has downsides, but the simplicity, the leverage and the lower costs means that it's the best structure for me now.

 

I bet the person that said that was not a lawyer or tax adviser as it is not correct.

 

OK thanks,
Do you mean that if you go in as an individual you get better leverage for future personal borrowing for additional investment?

 

Interested to know why 80 years specifically...

 

Not I recommend it, but you can get 95% LVR loans in your own name, for example.
Plus, you can get a loan under 2% (if secured against your PPOR).

Life expectancy, I presume.

 

You will probably die at some point. I was being on the generous side!
Also laws against perpetuities are generally 80 years (mainly for trusts).

 

same could apply for trusts.

 

Yes, but wouldn't that defeat the purpose of asset protection? I know not all trusts are the same and that's not necessarily a priority in all instances, but is often the reason that people look at trusts.
You obviously know a lot more about trusts than I do and it might also be ignorance on my part why I would decide against a trust, but I just can't see a compelling argument for one under these circumstances.

 

I don't understand what you are getting at with the asset protection. It would generally be the opposite. the higher a property mortgaged the less equity there is for unsecured creditors.

I am not at all suggesting the op go down the trust route however.

 

Interested to know the compelling arguments in favor of trust over individual... also noticed someone voted for company...

 

You don't state where you plan to buy but it seems to be NSW. The starting point should be that you do not set up a trust to own land in NSW because you would end up paying up to $11K more per year in land tax. Discretionary trusts get no tax free threshold in NSW.

 

this is your problem. You dont know whether the people voting have good reasons for their suggestions anyway. And the people who actually understand structures wont vote, because it depends on your circumstances.

some might be conflicting. Family trust assets, say, cannot be put into a testamentary trust. If the property is negatively geared, it might make sense to put it in the name of the high income earner, but what about cgt? What if you dont sell at all?

so many questions.

 

The land tax is paid on Land value by valuer general.

So your house maybe worth $1.2 million
But for the land tax the value maybe $700,000

Home - Valuer General of New South Wales (nsw.gov.au)