Buying Property in a Trust — Advantages, Disadvantages and Costs

What Is a Trust?

An inter vivos (living) trust is a legal entity created during a person's lifetime to hold and manage assets — including immovable property — for the benefit of nominated beneficiaries. The trust is established by a founder (also called the donor) through a trust deed, which sets out the terms under which the trust operates, names the trustees who manage the assets, and identifies the beneficiaries who will ultimately benefit from the trust's holdings.

In South Africa, all inter vivos trusts must be registered with the Master of the High Court, who issues a Letters of Authority authorising the nominated trustees to act on behalf of the trust. The trust is governed by the Trust Property Control Act 57 of 1988 and is subject to fiduciary duties requiring trustees to act in the best interests of the beneficiaries — not in their own personal interest or that of the founder.

Many South Africans use trusts for estate planning, asset protection, and continuity of ownership across generations. However, the decision to purchase property through a trust — rather than in your personal name — has significant legal, tax, and financial implications that must be carefully weighed. It is not a decision that should be taken lightly or without professional advice.

Transfer Duty for Trusts

A common misconception is that trusts pay higher or different transfer duty rates. This is incorrect for inter vivos trusts. Trusts pay transfer duty at the standard rates — the same sliding scale that applies to natural persons. The R1.21 million threshold (effective from 1 April 2025) applies equally to trust acquisitions, meaning properties purchased by a trust for R1.21 million or less are exempt from transfer duty, just as they would be for an individual buyer.

However, there are important nuances. If the trust is a "connected person" to the transferor as defined in section 1 of the Income Tax Act, certain anti-avoidance provisions may apply — particularly when an individual transfers property into their own trust. SARS may, in certain circumstances, attribute the income or capital gains from the trust property back to the founder under the attribution rules in sections 7 and 25B of the Income Tax Act. These rules are designed to prevent trusts from being used solely as vehicles to reduce tax liability.

It is also worth noting that if a VAT-registered entity sells property to a trust, VAT at 15% applies instead of transfer duty — the same rule that applies to purchases by natural persons. The trust cannot be liable for both VAT and transfer duty on the same transaction.

Advantages of Holding Property in a Trust

The primary advantage of holding property in a trust is estate planning. Property owned by a trust does not form part of the deceased founder's personal estate for estate duty purposes. Given that estate duty is levied at 20% on the dutiable value of estates exceeding R3.5 million (and 25% above R30 million), this can result in significant savings for high-net-worth individuals. The trust effectively removes the property from the founder's estate, reducing the total value on which estate duty is calculated.

Continuity is another significant benefit. When a property owner dies, their personal assets are frozen and administered through the deceased estate process — which can take 12 months or longer. A trust, by contrast, survives the death of the founder. The remaining trustees continue to manage the trust's assets without interruption, and no Letters of Executorship are required for the trust's property. This means beneficiaries can continue to occupy the property and the trust can continue to receive rental income without delay.

Asset protection is often cited as a reason for using a trust, and in certain circumstances this can be valid. Assets held in a properly structured trust — where the founder has genuinely ceded control and the trust is not merely their alter ego — may be protected from personal creditors. However, South African courts have increasingly been willing to pierce trusts where the founder treats trust assets as their own, effectively ignoring the separate legal personality of the trust. The landmark case of Van der Merwe and Others NNO v Hydraberg Hydraulics CC and subsequent decisions have made it clear that substance, not form, determines whether trust assets are protected.

Disadvantages

The most significant disadvantage of holding property in a trust is the loss of the primary residence capital gains tax (CGT) exclusion. When a natural person sells their primary residence, the first R2 million of capital gain is exempt from CGT. Trusts do not qualify for this exclusion — when the trust sells the property, CGT applies from the first rand of capital gain at the trust's effective rate, which can be as high as 36% (trusts are taxed at 45% on income, and 80% of the capital gain is included in taxable income, giving an effective CGT rate of 36%). For a property that has appreciated significantly, this can amount to hundreds of thousands of rands in additional tax.

Trusts are also taxed at a flat rate of 45% on all income — including rental income from trust properties. Individuals, by contrast, are taxed on a progressive scale that starts at 18% and only reaches 45% on taxable income exceeding R1.817 million. For most trust beneficiaries, this means the trust pays a higher effective tax rate on property income than the individual would have paid had they owned the property personally. While income can be distributed to beneficiaries (and taxed in their hands at their marginal rates), this requires careful planning and proper trustee resolutions.

Bank financing presents practical difficulties. Most banks will lend to trusts, but they impose additional requirements that make the process more onerous. All trustees typically must sign personal suretyships guaranteeing the debt — meaning the supposed asset protection benefit is undermined for financed properties. Loan-to-value (LTV) ratios are often more conservative: 80% maximum is common for trusts, compared to the possibility of 100% financing for qualifying individual borrowers. The trust deed must specifically authorise the trust to borrow money and mortgage immovable property, and any restrictions in the trust deed can delay or prevent financing.

Finally, trusts carry ongoing compliance costs. The trust must file annual income tax returns with SARS, maintain proper financial records, and comply with the Trust Property Control Act. Any changes to trustees require formal application to the Master of the High Court. SARS has significantly increased its scrutiny of trusts following the 2023 amendments to trust taxation rules, and non-compliance can result in penalties and interest.

Transfer Costs

The transfer costs for purchasing property in a trust's name follow the same structure as for personal transfers: transfer duty (paid to SARS), conveyancing attorney fees, and Deeds Office levies. Transfer duty is calculated at the same rates as for natural persons — there is no additional duty or surcharge for trust acquisitions. The conveyancing attorney's fees are also calculated on the same tariff guidelines.

However, trust transfers involve additional documentation that the conveyancer must verify and lodge. This includes a certified copy of the trust deed, a trustee resolution authorising the purchase (signed by all trustees), the Master's reference number confirming the trust's registration, and FICA documents for every trustee — not just the founding trustee or the trustee who signed the offer to purchase. If any of these documents are missing or deficient, the transfer will be delayed.

If the trust is taking a bond to finance the purchase, the bank will require personal suretyships from all trustees. The bond attorney will need to register the mortgage bond against the property in the trust's name, and this adds a separate set of bond registration fees. Some banks also require an independent trustee (a trustee who is not a beneficiary or family member of the founder) to be appointed before they will approve the loan — if your trust deed does not already provide for this, it may need to be amended.

Transferring Existing Property Into a Trust

A question that arises frequently is whether an individual can transfer their existing home into their trust. The answer is yes — but it is critical to understand that this is not a simple administrative change or a paper exercise. It is a full property transfer, legally equivalent to a sale from the individual to the trust. The property must be transferred through the Deeds Office by a conveyancing attorney, and all the usual transfer costs apply.

Transfer duty is payable on the current market value of the property (not the original purchase price you paid years ago). If the property has appreciated significantly since you bought it, the transfer duty will be calculated on the higher current value. In addition, the transfer may trigger capital gains tax for you as the transferor — you are effectively disposing of the property, and any gain since your original acquisition is subject to CGT (though the primary residence exclusion of R2 million would apply if it was your primary residence at the time of disposal).

The practical result is that you pay transfer costs twice: once when you originally purchased the property, and again when you transfer it into the trust. Conveyancing fees, Deeds Office levies, and potentially bond cancellation and re-registration fees all apply. For a property worth R3 million, the total cost of transferring it into your trust could easily exceed R100,000 when transfer duty, CGT, attorney fees, and disbursements are factored in.

Getting a Bond in a Trust's Name

Banks will lend to trusts, but the process is more involved than obtaining a bond in your personal name. The most significant requirement is that all trustees must sign personal suretyships guaranteeing the bond debt. This means that each trustee assumes personal liability for the full outstanding balance of the home loan — effectively negating the asset protection benefit that many people seek by purchasing through a trust. If the trust defaults on the bond, the bank can pursue any trustee personally for the shortfall.

Loan-to-value (LTV) ratios for trust borrowers are typically more conservative. While an individual with a good credit record might qualify for 100% financing, most banks cap trust lending at 80% LTV — meaning the trust (or its beneficiaries) must fund at least 20% of the purchase price as a deposit. The trust deed must specifically authorise the trustees to borrow money and to mortgage immovable property as security for that borrowing. If the trust deed is silent on borrowing powers, or if it restricts the trustees' ability to encumber trust assets, the bank may require the trust deed to be amended before it will approve the loan — a process that requires Master's approval and can take several weeks.

Some banks are more trust-friendly than others. It is worth approaching multiple lenders to compare terms, interest rates, and requirements. The bond registration process also takes longer for trusts due to the additional documentation, trustee verifications, and suretyship requirements. Budget for additional time — a trust bond registration can take 2–4 weeks longer than a standard individual bond registration.