Personal ownership is the simplest and straightforward way of purchasing an investment property. Many people will proceed on this basis as the majority of strategies will be a ‘buy and hold’ approach. The idea is to enjoy the tax benefits now and long term capital gain in the future.
Personal ownership can either be as an individual (sole) or held by two or more people (Joint).
Joint tenants mean those on the title (can be more than two people) own the property jointly and are responsible equally. The property can only be disposed of wholly, not in parts and on death, ownership of the property passes to the surviving owner. Most committed couples would elect to have this setup.
Tenants in common means each of those on title own a share (50/50, 75/25, etc.) of the property and can dispose of their share if they choose to. On death, the will of the deceased determines the outcome of the deceased’s share in the property.
Capital gains tax applies but is discounted after the asset is held for at least 12 months. (discourages speculation)
The setup costs are modest, and lenders are comfortable with high loan to value ratios, especially when the equity in other property secures the purchase.
It is possible to apportion ownership between purchasers to maximize tax benefits now and or to minimize capital gains tax obligations in the future.
The downside of this arrangement is its lack of flexibility – there is no opportunity to distribute gains or losses according to marginal rates of tax or variable annual earnings.
Also, once an ownership split is chosen at contract signing, the set up remains in force for the life of the investment, so should circumstances change the ownership proportions cannot be amended.
There is no asset protection, and in the event of the property eventually becoming positively geared, the additional income will be taxed at the individual owner’s marginal rate.