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Trusts and Estate Planning

There are three ways of moving assets into a trust and they all have different tax consequences

Donation

Many people think that this is what they need to do. Problem is you’re only allowed to donate R100 000 total per annum. After that you have to pay 20% Donations Tax so this is not the way to go.

Sale

This is the normal way. You sell the asset to the trust, or usually a company owned by the trust (the sale price is deemed to be at market value for tax purposes) and take the tax consequences which are usually Transfer Duty and CGT. Transfer Duty does not apply if you sell the shares of a company which owns commercial property, but if it owns residential property, you are deemed to have sold the property to the trust and must pay transfer duty. The tax is minimised by obtaining valuations from two Estate Agents, making sure they go as low as they are willing to go. Take the average and declare that as the sale price.Transfer Duty kicks in above R900 000 and is only 3% up to R1 250 000, then it goes to 6%, 8%, 11% and 13% above R10 000 000.

The trust has no money so you sell on loan account (that is, the trust is going to owe you the money). There is relatively new legislation regarding low interest loans to trust structures.

Cash

If the taxes resulting from the above sale are prohibitive, then best wait until you sell the asset (usually property), pay the CGT from the proceeds and lend the money to the trust to buy a new investment property. This way you are paying CGT from cash that you received from the sale which you knew would be the case anyway and there’s no transfer duty arising from the loan.

Need help with your Investments?

Contact us today or set up a free meeting with our CEO, Derek Springett, to discuss your options. We have been offering expert financial advice and business services since 1971. You can also visit our online store to see our list of financial services.