When buying a property it is important to consider what the best form of ownership is for your situation. This will differ depending on if you are buying a rental investment property or a home to live in as well as your personal circumstances so it is essential to get professional advice on your structuring options.
There are numerous options available, the most common of which are described in further detail:
1. Personal names
The simplest method of property ownership is for the property to be resisted in one’s personal name. If you are purchasing the property in the names of two or more people you can choose to be Joint Tenants or Tenants in Common.
– Joint Tenants:
As joint tenants the names of all owners are listed together on the title. If one owner passes away the property will go directly into the name of the other owners, not to the estate of the deceased owner. This is the most common form of ownership for couples and standard requirement for mortgage registrations unless otherwise arranged with your lender.
– Tenants in Common:
With this option the ownership of the property is divided into shares. These can be 50/50 or a different percentage based on the amount each party contributes to the purchase. Should one of the owners pass away their share in the property will go to their estate. This method of ownership is suited to business partners co-purchasing a property or couples with children from former relationships that wish to leave a share in the property to their children.
2. Family Trusts
Family trusts are a good option for people wanting to protect their family home or investment properties while at the same time retaining control of these assets. Some of the main reasons to establish a trust include:
– Protection against relationship property and third party claims
– Estate planning to provide for and benefit future generations
– Possible tax savings: legitimate income splitting
– Retirement planning and savings
– Protecting against potential reintroduction of estate duties
– Charitable or Educational purposes
– Limited Liability Company
This is usually used by GST registered commercial property owners or property developers. The problem with this vehicle is that you cannot simply sell the property and realize the capital, you need to liquidate the company in order to do this otherwise the money paid to the owners would be deemed as dividend and would be taxed.
– LTC (Look Through Company)
This new property ownership vehicle replaced LAQCs and are a good structure for negatively geared investment properties. LTC companies are fiscally transparent, so from IRD’s point of view everything including income, expenses, tax credits, rebates, gains and losses are passed on to its shareholders.
4. Limited Partnerships
Limited Partnerships are a form of partnership involving General Partners (who are liable for all the debts and liabilities of the partnership) and Limited Partners (who are liable to the extent of their capital contribution to the partnership). Usually limited partners are investors and general partners are managing the business. You have to register the partnership through the Companies Office. This structure is used mainly by international investors as it gives them limited liability as well as the privacy because the name of the limited partners will not be publicly available.
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