Selling a property in a trust
Moneyweb
A reader asks: I have a property in a trust that I’d like to sell. What’s the most tax-efficient way to do this? Where do I invest the proceeds if I’m planning to retire in 5-10 years? Natasja Hart, wealth manager at GCI Wealth, answers:
When selling a property in a trust, the main tax consequence is capital gains tax (CGT).
A well-established principle in trust taxation is the conduit principle, where trust capital (or income) that’s been vested in beneficiaries isn’t taxed in the hands of the trust, but in the hands of the beneficiaries.
With the sale of a property, if the beneficiaries are capital beneficiaries, any capital gain due from the property’s sale may be taxed in the hands of the beneficiaries at their tax rate, not at that of the trust. As such, it may be advantageous to favour beneficiaries with a lower marginal rate. Investing
It’s difficult to answer the investment part of the question, without understanding your overall assets, how much income you need, dependants and age.
First, find out the percentage of the overall portfolio the proceeds from selling the property would represent. Then understand your own risk profile. You must distinguish between your risk tolerance ( your personal emotional or psychological willingness to take risk) and your risk capacity ( your portfolio’s ability to take risk, without jeopardising your financial goals).
Also consider required risk – the risk associated with the return needed to achieve your goals with the available financial resources. The longer your time horizon for the investment, the higher the return target can be. A short-term horizon limits the underlying asset allocation to more conservative assets, whereas an investment horizon of 5-10 years allows for a higher exposure to growth assets.
When considering time horizons, people often focus too intently on the retirement date and don’t consider that actual retirement could last for over 30 years. This perspective could drastically alter an investment’s time horizon from 5-10 years, to 20-30 years.
I strongly advise you consult a financial planner.