Buying an investment property in a trust vs your own name

In your own name, every lender is available, the assessment is straightforward and there are no guarantee or deed reviews. In a trust, lender choice narrows, documentation increases and some lenders add cost. LVRs are the same. For a first investment property the finance is easier personally; for the fourth, lenders' exposure limits to you personally may make a trust with its own lending relationship useful.

Negative gearing is the big one. A property that loses money each year produces a deduction against your salary if you own it personally; in a trust the loss is trapped until the trust has income to absorb it. High-income earners buying a negatively geared property usually buy personally for that reason. Once the property is positively geared, a trust can distribute the income to a lower-earning spouse or adult children, and on sale the capital gain can be distributed to whoever has the lowest rate, with the 50 per cent discount still available. Companies do not get the discount, which is why trusts rather than companies hold appreciating property.

New South Wales taxes discretionary trusts on land from the first dollar with no tax-free threshold. Queensland gives trusts a lower threshold than individuals. Victoria applies a surcharge rate to trust-held land above a low threshold. Other states vary. Across a portfolio the difference can be thousands of dollars a year, and it is usually the deciding factor for investors in New South Wales.

Property held in a discretionary trust is generally not available to the personal creditors of a beneficiary, which matters to business owners, directors and professionals exposed to claims. It is not absolute, because the guarantees given to the lender expose the guarantors personally, and a trust set up to defeat known creditors can be unwound. But for someone who runs a business, holding investments in a trust separate from the trading entity is standard advice.