Property investment can take many forms, including short-term letting of the “family holiday home”, residential/commercial rental portfolios of various sizes, or minor subdivisions through to large-scale development projects.

Working with a trusted business advisor at the start of your investment journey will be beneficial in a number of ways. These include analysing the numbers to determine whether a property meets your financial goals, assisting with budgets and forecasts to support your finance applications, and providing general business and tax advice.

If you’re considering property investment, it’s important to discuss what ownership structure is right for you. Your advisor can outline the commercial implications and the tax advantages and disadvantages of each structure. Your intentions will be the largest contributing factor in what property ownership structure you choose.

Let’s look at some of the possibilities you might be considering.

Do you want to only buy one or two properties, or create a large rental portfolio?

The scale and nature of your investments can help determine whether the added cost and complexities of a particular structure is worth it over another simpler structure, i.e. owning property in your own name is the simplest structure compared to ownership via a trust which has setup costs and higher annual compliance costs.

Are you keen to look at development opportunities e.g. is ”flipping” property something that interests you? 

These activities require more thought given there is often a higher level of risk involved, and the tax treatment of these transactions is more complex. A separate legal entity would allow you to keep these activities separate from other property investments.

Are you predominantly investing for capital growth or is your main aim to generate cashflow to pay down debt or invest further? 

If the financial projections for the property show that it is likely to generate short-term taxable profits, then this – along with an understanding of your other income – will help to ensure that tax efficiencies are maximised where possible. This may be in the form of a family trust, allowing profit distribution across multiple family members, or sole ownership to keep the profits in the hands of one person only.

If you intend to hold investment properties long term to maximise and leverage capital growth, it’s important to utilise a structure that will enable you to access any capital gains with ease in the future. In most cases, this is a large drawback with an ordinary company. 

Are you considering short-term lets? And do you have other potential taxable activities?

As short-term lets are treated as a taxable supply for GST purposes compared to long-term residential lets, which are classified as an exempt supply, it’s important to understand the GST implications. If you already operate a business under the same ownership as the intended property investment, any income and costs associated with the property will automatically become part of the GST registration if the business is GST-registered.

If the business isn’t GST-registered because the turnover is under the GST threshold (currently $60,000 within a 12-month period), any income generated from the property investment could cause the total turnover to breach the GST registration limit and therefore require registration.

Is asset protection something you need to consider?

If you already have other trading activities, it may be worthwhile separating your property investments from your business activities to try to protect them from any business operating risk.

If you are currently thinking that property investment could form part of your plans in the future, please get in touch with your trusted Baker Tilly Staples Rodway advisor. Their advice and insight can often be invaluable.