Asset Protection In Property Transaction

Monday, January 28, 2019

The issue of asset protection is often considered when people purchase a business or commercial property but it is not always considered when purchasing residential property.

People will generally buy property as their own home or as an investment property. If you are buying a property as an investment property then you will want to ensure that, as far as possible, your investment property is safe from creditors and from being sold from under you to satisfy debts.

Points to consider will include:

  1. Should I purchase the property in the name of a company or a trust?
  2. Should I purchase the property in the name of my spouse/partner who has a lower risk profile than me e.g. the nature of my work is such that there is a possible risk of me being sued and my personal assets being at risk?
  3. What are the tax consequences of points 1 and 2?

It is advisable to speak to your accountant in the first instance because everyone has a different set of financial circumstances and tax considerations. Your accountant will usually have a good insight into your individual situation.

If you choose to set up a company or trust to hold the property then there will be set up costs to incorporate a company and/or create a trust. In addition, there will be ongoing costs e.g. separate tax returns will need to be prepared for the company or trust.

Similar considerations will apply when you purchase your own home. However, you also need to consider that you cannot claim the main residence CGT exemption if you purchase the property in the name of a company or trust. Again, a discussion with your accountant about this topic is advisable.

It is important that these issues are dealt with before you enter into the contract. A seller is not obliged to agree to the change of buying entity once the contract is entered into. Even if the seller does agree then it is likely that the contract will need to be terminated by means of a deed of rescission and a new contract entered into which will involve you in further cost.

Note that the above information is of a general nature only. Your situation should be considered by your accountant and your solicitor as there may be other issues to consider in respect of both your personal/financial situation and your asset protection strategy such that the above steps on their own may not protect you from possible claims against your personal assets.

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