When you first start investing in real estate, you should think about the best way to set up your assets to make sure they are safe, last a long time, and save you money on taxes.
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Three common structures to choose from include a:
company with a trust,
company directly, or
Each structure has its own advantages and disadvantages, and the one you choose will depend on your specific plans, situation, and family considerations.
Structure 1 - Company with a Trust
A company with a trust is a structure that combines the benefits of a company with the added protection and longevity of a trust. This structure can be ideal, as the assets are held in trust and are therefore largely protected from creditors, bankruptcy, and other financial risks.
Also, trusts can make succession planning more flexible because they let you say how your assets should be passed on to future generations.
However, there are some challenges associated with a company with a trust structure, particularly when it comes to obtaining a mortgage. Banks and other financial institutions may view the structure as complex and may be less likely to grant loans, making it difficult or more expensive to secure financing for property investments.
Structure 2 - Company
A company is a separate legal entity from its owners and is ideal for income tax purposes. Companies pay corporation tax on their profits, which is currently set at 19%. The advantage of this structure is that it allows you to sell the company via share transfer, making it easier to transfer ownership and simplifying the sale process.
However, there is one major disadvantage of a company structure – it does not offer a personal allowance benefit.
Structure 3 - Personal Name
A personal name, also known as a sole trader, is the simplest structure for a business or property investment. This structure limits your mortgage cost deductions.
Ultimately, the structure you choose will depend on your specific plans, situation, and family considerations.
If you are looking for protection and longevity, a company with a trust may be the ideal choice, but if you are looking for tax efficiency, a company may be the better option.
If you prefer simplicity and personal control, a personal name may be the best choice for you.
Whichever choice you make, we definitely recommend chatting with our team about your options and booking a chat with our specialists in structuring for you.
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