How trusts avoid taxes for property investors

If you own investment property in your own name, SARS will grab about 34% of it's value in taxes when you die.

You've got two taxes to consider -

  • CGT at 18%
  • Estate Duty at 20%

 IndivProps

Capital Gains Tax (CGT)

You are deemed to have sold your assets to your deceased estate at the moment of death at market value. In the example, that means you sold R40m worth of property whose cost was R10m, so you are deemed to have made a capital gain of R30m.

CGT is about 18% (sometimes less, sometimes more) and 18% of R30m is R5,4m

Estate Duty

Then there's Estate duty on your assets at 20%. 20% of R40m is R8m

Total tax* on death**

So the total tax is R13,4m - just because you died!

* I ignore the allowances which are there to protect your personal assets like your home, your cars etc.

** Actually, if you and your spouse bequeath everything to each other, it's when the 2nd of you dies.

The solution is a Trust

If you sell your properties to a trust now, then you will dramatically reduce those horrendous taxes.

TrustProp

If the current value of the properties is say, R2m, you'll pay R90K CGT and maybe a bit of Transfer Duty. Often, that R90K can be legitimately reduced. You'll also have to pay the conveyancer's fees and re-negotiate the bond if there is one.

Why the Newco? Because the trust would pay 45% income tax on the net rental, whereas the company only pays 28%.

It's a no-brainer and the sooner the better.

 


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