Can I change from personal ownership to a trust later?

Yes, but it involves legally selling the property to the trust, which may trigger the bright-line test, require new financing, and incur legal costs. It is generally better to choose the right structure from the start.

Do banks prefer lending to individuals or companies?

Banks generally prefer lending to individuals for residential investment properties. Lending to companies or trusts often requires personal guarantees and may have stricter terms. Talk to your mortgage broker about how different structures affect your borrowing capacity.

What is the difference between an LTC and a normal company?

In a look-through company (LTC), income and losses pass through to shareholders and are taxed at their personal rates. In a standard company, the company pays tax at 28% and losses stay within the company. LTCs have restrictions including a maximum of 5 shareholders.

Is a trust still worth it after the 39% trustee tax rate?

Trusts can still be worthwhile for asset protection and estate planning purposes. However, the tax advantages have reduced significantly. If tax minimisation is your primary goal, other structures may now be more effective. Discuss your specific situation with your accountant.

Company, Trust, or Personal Name: Investment Property Ownership Structures

One of the first questions property investors face is: should I buy in my own name, through a company, or via a trust? Each structure has different implications for tax, asset protection, financing, and estate planning. Getting this decision right from the start can save you significant money and hassle down the track.

Personal Ownership

Buying property in your own name is the simplest and most common approach, especially for first-time investors. You own the property directly, receive the rental income, and claim deductions against your personal income.

Advantages of Personal Ownership:

Simple and inexpensive to set up
No ongoing compliance costs for separate entities
Easier to obtain finance (banks prefer lending to individuals)
Losses can offset your other personal income
Full control over the property

Disadvantages of Personal Ownership:

No asset protection from creditors or legal claims
Taxed at your marginal rate (up to 39%)
Property forms part of your estate (relationship property issues)
Difficult to bring in other investors later

Personal ownership works well for investors who are just starting out, have lower incomes, or want to use rental losses to reduce their personal tax bill. However, as your portfolio grows or your circumstances change, you may want to consider other structures.

Family Trusts

Trusts have traditionally been popular for property ownership in New Zealand, primarily for asset protection and estate planning. However, significant tax changes in recent years have made trusts less attractive from a tax perspective.

Advantages of Trusts:

Asset protection from personal creditors and claims
Estate planning flexibility
Protection in relationship property disputes (if set up correctly)
Can distribute income to beneficiaries in lower tax brackets

Disadvantages of Trusts:

Trustee income taxed at 39% (from 1 April 2024)
Trust losses cannot be passed to beneficiaries
Setup and ongoing administration costs
Banks may require personal guarantees anyway
Complex compliance requirements

The increase in the trustee tax rate to 39% in 2024 significantly reduced the tax advantages of trusts. Now, unless you can legitimately distribute all trust income to beneficiaries in lower tax brackets, the trust may actually pay more tax than personal ownership.

Look-Through Companies (LTCs)

Look-through companies are a special type of company that allows profits and losses to "look through" to the shareholders. For tax purposes, the company itself does not pay tax; instead, income and expenses are attributed to shareholders in proportion to their ownership.

Advantages of LTCs:

Losses pass through to shareholders (can offset personal income)
Taxed at shareholders' marginal rates
Some asset protection (limited liability company)
Easier to bring in partners or sell shares
Clear ownership structure

Disadvantages of LTCs:

Maximum 5 shareholders (must be NZ tax residents or certain trusts)
Setup and annual compliance costs
Maximum 5 shareholders limits flexibility
Banks may still require personal guarantees
More complex tax returns

LTCs remain a popular structure for property investors because losses pass through to shareholders and can offset their other personal income. The rental loss ring-fencing rules that previously limited this were repealed from the 2024/25 tax year.

Standard Companies

A standard company (not an LTC) is a separate legal entity that pays tax at the company rate of 28%. Unlike LTCs, profits and losses stay within the company and do not pass through to shareholders.

Advantages of Standard Companies:

Flat 28% tax rate (lower than top personal rate of 39%)
Asset protection through limited liability
No shareholder restrictions like LTCs
Can retain profits for reinvestment
Professional structure for larger portfolios

Disadvantages of Standard Companies:

Losses cannot offset shareholders' personal income
Double taxation if dividends are paid out
Setup and ongoing compliance costs
May be harder to obtain residential property finance
More complex to wind up

Standard companies can work well for investors with large, profitable portfolios who are in higher tax brackets. The 28% company rate provides a tax advantage over the 39% top personal rate, and profits can be retained within the company to fund further acquisitions.

Comparing the Structures

Feature	Personal	Trust	LTC	Company
Tax Rate	10.5% to 39%	39% (trustee)	10.5% to 39%	28%
Loss Offset	Yes	No	Yes	No
Asset Protection	None	Good	Some	Some
Setup Cost	None	$1,500 to $3,000+	$500 to $1,000	$500 to $1,000
Bank Lending	Easiest	Harder	Moderate	Harder

Which Structure is Right for You?

There is no one-size-fits-all answer. The best structure depends on your specific circumstances, including:

Your income level: Higher earners may benefit from company structures
Whether properties will be profitable or loss-making: LTCs work well for losses
Your need for asset protection: Trusts and companies offer more protection
Your long-term plans: Estate planning may favour trusts
Your financing needs: Banks prefer personal ownership
Compliance tolerance: Structures add complexity and cost

Many investors start with personal ownership for their first property, then review their structure as their portfolio and circumstances evolve.

Changing Structures Later

It is possible to change ownership structures later, but this can be costly and complex. Transferring property from personal ownership to a trust or company may trigger:

Legal fees for the transfer
Potentially the bright-line test (treated as a sale)
New mortgage arrangements

This is why it is worth getting professional advice before you buy, even if the upfront cost seems high. The right structure from the start can save significant money and hassle later.

Getting Professional Advice

Choosing an ownership structure is one of the most important decisions you will make as a property investor. The implications for tax, asset protection, and estate planning are significant and long-lasting.

We strongly recommend consulting with both an accountant and a lawyer before purchasing your first investment property. They can assess your specific situation and recommend the most appropriate structure for your goals.

The cost of professional advice is a small price to pay compared to the potential costs of getting this decision wrong.