property profits: How trusts save you money
13 September 2008

Wondering why your Capital Gains Tax bill can be chopped when property is housed in a trust? Tax expert explains.
Paul Ferreira, a partner with Maitland's advisory division in Johannesburg, answers a reader's question.

Question:

I do not understand how a trust can limit the growth of the value of the property. Is there something in the Capital Gains Tax legislation that I am missing?

Reply:

It's not the growth in the value of an asset that a trust can limit, but the tax on the growth. Take a simplified example:

I acquire a growth asset for 100 which, on my death five years' later, has a value of 200. On my death there would be a deemed disposal and CGT of 10 [(200 - 100) x 10%] and my estate would be liable for estate duty of 38 [(200 - 10) x 20%]]. The total tax would be 48.    On the other hand, if I had lent a trust the 100 and it had acquired the asset, on my death there would be no CGT (as the 100 base cost of the asset, the loan, would equal its 100 value), and the estate duty on the loan would be 20 (100 x 20). The total tax would be 20.

Paul Ferreira,  www.realestateweb.co.za