One of the most frequently asked questions from property investors is: "Should I own my investment properties in my personal name, a trust, or a company?" The ownership structure decision affects taxation, asset protection, estate planning, lending capacity, and administrative complexity. Yet there's no universal "best" answer – the optimal structure depends entirely on your individual circumstances, goals, and portfolio scale.
At Luminate Financial Group, we regularly help investors evaluate ownership structure options. We've observed that many investors make this decision based on incomplete information, advice from friends or family with different circumstances, or outdated understanding of current rules and implications. Some establish complex structures that provide minimal benefit while adding unnecessary cost and complexity. Others use simple personal ownership when alternative structures would genuinely serve them better.
The ownership structure question deserves thorough analysis considering your complete financial situation, not reactive decisions based on generic advice or assumptions about what "sophisticated investors" do. Each structure – personal ownership, trusts, and companies – offers distinct advantages and disadvantages that make sense for some investors but not others.
Let's explore each ownership option comprehensively to help you determine what's actually appropriate for your circumstances.
Critical Disclaimer: Ownership structure decisions have significant legal, tax, and financial implications. This article provides general information only and is NOT tax advice. Always engage qualified lawyers, accountants, and financial advisors before establishing ownership structures or transferring properties between structures.
Owning investment properties in your personal name is the simplest and most common structure, particularly for investors starting out or managing small portfolios.
Properties are registered in your name (or jointly with partners/spouses). All income flows to you personally and is taxed at your marginal rate. All liabilities and obligations are yours personally. Properties form part of your personal estate for inheritance purposes.
Simplicity and Low Cost: Personal ownership is straightforward with no setup costs beyond standard property purchase expenses, minimal ongoing compliance requirements, simple tax reporting through personal returns, and no additional entity maintenance costs.
For investors with one to three properties, personal ownership's simplicity often outweighs any marginal benefits from complex structures.
Flexibility: Personal ownership provides maximum flexibility including easy property transfers between personal entities, straightforward refinancing options, simple decision-making without trustee or director obligations, and ability to use equity across your personal financial position.
Optimal Bank Lending: Banks generally prefer lending against personally-owned properties with better interest rates than trust or company lending, higher maximum loan-to-value ratios, simpler approval processes, and fewer restrictions on lending structures.
Personal borrowing capacity typically exceeds trust or company borrowing capacity for equivalent financial positions.
No Additional Tax Costs: Personal ownership avoids trustee tax rates (33-39%) or company tax complications. Rental income and capital gains (where applicable) are simply taxed through your personal returns at marginal rates.
Access to Losses: Rental property losses (where expenses exceed income) can offset other personal income, reducing overall tax. This benefit is particularly valuable in early property ownership years when negative gearing is common.
Unlimited Personal Liability: Properties and all associated liabilities sit in your personal name. If tenants are injured, properties cause damage, or lawsuits arise, your personal assets are exposed to claims.
While insurance mitigates many risks, gaps exist and some liabilities may not be fully covered.
Estate Planning Limitations: Properties in personal names pass through your will, potentially subject to challenges, Family Protection Act claims, or relationship property complications.
Complex family situations, blended families, or specific inheritance intentions may be difficult to achieve through personal ownership alone.
Income Attribution: All income is taxed at your personal marginal rate. If you're a high earner (39% tax bracket), all rental income is taxed at that rate with no ability to split income to partners or family members in lower tax brackets.
Succession Complexity: Passing properties to next generations or family members involves sales triggering bright-line tests (if applicable), potential gift duties (historically), and complex relationship property considerations.
Personal ownership typically suits:
Personal ownership works excellently for many successful property investors throughout their entire investment careers. Don't assume you need complex structures simply because you own investment properties.
Family trusts are the most common alternative ownership structure for New Zealand property investors, primarily used for asset protection and estate planning purposes.
A trust is a legal entity where trustees hold assets (properties) for beneficiaries' benefit. Trustees have legal ownership and control, while beneficiaries have beneficial interests and may receive income or capital distributions.
Typical family trust structures involve family members as trustees, family members and descendants as beneficiaries, and discretionary distributions allowing trustees to allocate income and capital among beneficiaries.
Asset Protection: The primary trust advantage is separating legal ownership from personal wealth. Assets in trusts are generally protected from personal creditors, business liabilities, relationship property claims (with caveats), and professional liability claims.
Important Caveat: Asset protection isn't absolute. Courts can "look through" trusts in certain circumstances including fraudulent transfers, settlements to defeat creditors, or certain relationship property situations.
Estate Planning Control: Trusts enable controlling how assets pass to next generations beyond standard will provisions including avoiding probate, protecting assets for beneficiaries with challenges, staged distributions to younger beneficiaries, and protection from beneficiaries' creditors or relationship property claims.
Income Distribution Flexibility: Trustee discretion allows distributing income to beneficiaries in lower tax brackets, potentially reducing overall family tax burden. A high-earning parent might have trust income distributed to adult children in lower tax brackets.
Privacy: Trust ownership provides privacy regarding property ownership, as beneficial ownership isn't publicly registered. Property records show the trust as owner, not individual beneficiaries.
Business Succession: For investors building substantial property portfolios as business ventures, trusts facilitate succession planning and intergenerational wealth transfer more smoothly than personal ownership.
Significant Setup and Ongoing Costs:
Over decades, these costs accumulate to tens of thousands of dollars that must be justified by genuine benefits.
Trustee Tax Rates: Trust income not distributed to beneficiaries is taxed at trustee rates (33% or 39% for certain income). High earners might pay similar or higher rates personally, eliminating tax advantages.
Complex Administration: Trusts require maintaining separate records, holding annual trustee meetings, documenting decisions in minutes, filing separate tax returns, and following trust deed requirements.
Trustees have legal obligations and potential personal liability for trust mismanagement.
Bank Lending Challenges: Banks view trust-owned properties as higher risk with higher interest rates than personal lending (often 0.25-0.5%+ higher), lower maximum LVRs, more stringent approval requirements, and requirements for personal guarantees (reducing asset protection benefits).
Limited Asset Protection in Practice: While trusts provide asset protection in theory, banks typically require personal guarantees from settlors/beneficiaries when lending to trusts. These guarantees pierce the asset protection veil, exposing personal assets to liabilities if trusts default.
Transfer Costs: Moving existing personally-owned properties into trusts triggers conveyancing costs, potential bright-line tax if within applicable periods, relationship property considerations, and potential deemed disposal for tax purposes.
Inflexibility: Trust structures, once established, are difficult and expensive to change. Dissolving trusts or modifying structures requires legal processes and potential tax consequences.
Trusts may suit:
For investors with one or two properties and straightforward circumstances, trust costs and complexity often outweigh benefits.
Companies represent another alternative ownership structure, though less common than trusts for residential property investment.
Properties are owned by limited liability companies. Directors manage companies, shareholders own companies, and companies are separate legal entities with their own tax obligations.
Lower Tax Rate: Companies are taxed at 28% on profits, lower than higher personal tax rates (33% or 39%). High earners may benefit from the 28% company rate versus personal rates.
Limited Liability: Companies provide legal liability protection. Company debts and liabilities are the company's, not shareholders' personally (subject to director obligations and bank guarantees).
Clear Business Structure: Companies clearly separate investment activities from personal affairs with professional business structure, clear accounting boundaries, and easier management as portfolios scale.
Easier Expansion: Adding new shareholders or partners is straightforward through share issuance. Multiple investors can participate through shareholdings with clear ownership percentages.
Succession Planning: Shares can be transferred or sold more easily than properties, facilitating succession planning and generational transfer.
Double Taxation: Company profits are taxed at 28%. When distributed to shareholders as dividends, shareholders pay additional personal tax on distributions (though imputation credits offset some double taxation).
This double taxation can result in higher overall tax than personal ownership for low to moderate earners.
Setup and Compliance Costs:
Bank Lending Challenges: Similar to trusts, banks view company lending as higher risk with higher interest rates, lower LVRs, more stringent approval, and personal guarantee requirements from directors/shareholders.
Limited Loss Offset: Company losses can't offset shareholders' personal income. Properties with negative cash flow create company losses that can only be carried forward within the company, not used to reduce personal tax.
This is particularly disadvantageous in early years when properties are negatively geared.
Complex Administration: Companies require maintaining company registers, filing annual returns with Companies Office, holding director and shareholder meetings, documenting decisions in minutes, and complying with Companies Act requirements.
Director Liabilities: Directors have legal obligations and can face personal liability for certain company actions including reckless trading, GST default, or other breaches.
Companies may suit:
For residential property investors with small to medium portfolios, companies' disadvantages typically outweigh benefits.
Let's compare the three structures across key dimensions:
Personal: Taxed at marginal rates (10.5% to 39%). Losses offset personal income.
Trust: Trustee tax at 33-39% unless distributed. Distribution flexibility allows tax planning.
Company: Company rate 28%, then shareholder tax on distributions. Losses trapped in company.
Winner for Most Investors: Personal ownership for low to moderate earners. Trusts or companies potentially beneficial for high earners.
Personal: No protection beyond personal insurance.
Trust: Good protection in theory, but often compromised by bank guarantee requirements.
Company: Limited liability protection, but also compromised by guarantees.
Winner: Trusts or companies offer better asset protection, though practical benefits are often less than theoretical benefits due to bank guarantee requirements.
Personal: Minimal costs beyond standard property expenses. Simple administration.
Trust: High setup ($2,000-$4,000) and ongoing costs ($2,000-$5,000+ annually). Complex administration.
Company: Moderate setup ($500-$1,500) and moderate to high ongoing costs ($2,000-$4,000+ annually). Moderate complexity.
Winner: Personal ownership for simplicity and cost efficiency.
Personal: Best lending rates, highest LVRs, simplest approval.
Trust: Higher rates, lower LVRs, more complex approval, guarantees required.
Company: Similar to trusts – higher rates, lower LVRs, complex approval, guarantees required.
Winner: Personal ownership for optimal lending.
Personal: Maximum flexibility for refinancing, restructuring, or selling.
Trust: Limited flexibility, complex and costly to restructure or dissolve.
Company: Moderate flexibility, though changes require compliance processes.
Winner: Personal ownership for maximum flexibility.
Some investors use multiple structures strategically:
Example Strategy:
This hybrid approach captures benefits of different structures for different purposes while managing complexity and costs.
Rather than asking "which structure is best?" ask "which structure is best for MY circumstances?"
Portfolio Scale: How many properties do you plan to own ultimately? Small portfolios (1-3) rarely justify complex structures. Larger portfolios (5+) may benefit from trusts or companies.
Income Level: What's your income and marginal tax rate? High earners may benefit from company tax rates or trust distribution flexibility. Moderate earners usually benefit from personal ownership simplicity.
Asset Protection Needs: Do you have high-risk professions, business liabilities, or significant personal assets to protect? If not, insurance may sufficiently manage risks without needing trusts or companies.
Family Complexity: Do you have complex family situations, estate planning needs, or specific inheritance intentions requiring structured control? Simple families with straightforward succession plans may not need trusts.
Comfort with Complexity: Are you willing to manage additional administration, compliance, and costs? If complexity feels overwhelming, personal ownership's simplicity may suit better regardless of marginal benefits from alternatives.
Professional Advice: Can you afford quality legal, accounting, and financial advice to establish and maintain structures properly? Poorly-structured trusts or companies create more problems than they solve.
At Luminate Financial Group, we emphasize that ownership structure decisions should follow strategy, not lead it. First, develop clear investment strategies and goals. Then determine which ownership structures best support those strategies.
For most first-time investors and those with one to three properties, personal ownership is typically optimal. The simplicity, cost efficiency, and favorable lending treatment outweigh theoretical benefits of complex structures for small-scale investors.
As portfolios grow beyond 3-4 properties or total values exceed $1.5-2 million, revisiting ownership structures makes sense. At this scale, trust or company structures' benefits may justify their costs and complexity.
We also observe that many investors establish trusts or companies prematurely based on advice from friends, perceived sophistication, or assumptions that "serious investors" use complex structures. These premature structures often provide minimal benefit while adding unnecessary cost and complexity to simple situations.
Conversely, some investors with substantial portfolios and legitimate asset protection or estate planning needs continue using simple personal ownership when alternatives would genuinely serve them better.
The key is making informed, deliberate decisions based on your actual circumstances rather than generic advice or assumptions about what you "should" do.
Work with qualified advisors who understand your complete financial picture, portfolio plans, family situation, and goals. Ownership structure decisions have long-term implications and should be made carefully with comprehensive professional advice.
Don't rush into complex structures. You can always add complexity later as your portfolio grows and circumstances change. Starting simple and adding structure as needed proves wiser than starting complex and discovering those structures weren't necessary.
Finally, remember that no structure provides magic solutions. Each offers trade-offs between different priorities – tax, asset protection, complexity, cost, and flexibility. The "best" structure is simply the one offering the trade-off mix that best aligns with your priorities and circumstances.
For many successful New Zealand property investors, that optimal structure is straightforward personal ownership throughout their entire investment careers. Don't let anyone convince you that you need complex structures unless your specific circumstances genuinely warrant them.