Mortgages

Borrowers using trusts warned

People who have a revolving credit mortgage associated with a trust may be facing trouble.Thousands of mortgage customers with trusts are creating gift duty liabilities for themselves without even realising it, the chief executive of a trust management company says.

Friday, November 17th 2006

Mark Maxwell of Integrity Trust says these people are often unwittingly increasing the chances of their trust being challenged as a sham.

 

Splitting mortgages between a fixed rate mortgage and a revolving credit facility has become an increasingly popular trend over recent years. These facilities work by allowing customers to deposit money as it is received then withdrawing it as required. As well as providing the flexibility to redraw from ones mortgage there can be significant interest savings over the term of a mortgage for those disciplined enough to manage them well.

 

 

With billions of dollars worth of fixed rate mortgages maturing over the coming months it is likely that some of this borrowing will be switched to revolving credit mortgages. When the mortgage involves a trust, care needs to be taken to structure things correctly and ensure that deposits and withdrawals are managed appropriately.

 

 

Customers need to be aware that every deposit made to a revolving credit facility operated within a trust can be assessed as a gift unless it is documented otherwise. Gift duty becomes payable when total gifts exceed $27,000 each year and progressively increases until it reaches 25c per dollar gifted. For people already involved in gifting their home to the trust the duty liability can mount up very quickly.

 

 

“The lack of education by advisers around how trusts need to be managed after they are established is creating these risks and many others,” Maxwell says.

 

 

In addition to gift duty risks, trustees may also find they are providing those seeking to challenge a trust exactly the type of evidence they need to have the trust ruled a sham. This could prove to be far more costly than any duty liabilities.

 

Heartland Bank - Online 6.69
SBS FirstHome Combo 6.74
Wairarapa Building Society 6.95
Unity 6.99
Co-operative Bank - First Home Special 7.04
ICBC 7.05
China Construction Bank 7.09
BNZ - Classic 7.24
ASB Bank 7.24
ANZ Special 7.24
TSB Special 7.24
Unity First Home Buyer special 6.45
Heartland Bank - Online 6.45
China Construction Bank 6.75
TSB Special 6.75
ICBC 6.75
ANZ Special 6.79
ASB Bank 6.79
AIA - Go Home Loans 6.79
Kiwibank Special 6.79
BNZ - Classic 6.79
Unity 6.79
Westpac Special 6.39
China Construction Bank 6.40
ICBC 6.49
SBS Bank Special 6.55
Kiwibank Special 6.55
BNZ - Classic 6.55
Co-operative Bank - Owner Occ 6.55
ASB Bank 6.55
AIA - Go Home Loans 6.55
TSB Special 6.59
Kainga Ora 6.99
SBS FirstHome Combo 6.19
AIA - Back My Build 6.19
ANZ Blueprint to Build 7.39
Credit Union Auckland 7.70
ICBC 7.85
Heartland Bank - Online 7.99
Pepper Money Essential 8.29
Co-operative Bank - Owner Occ 8.40
Co-operative Bank - Standard 8.40
First Credit Union Standard 8.50
Kiwibank 8.50

More Stories

Support for regulation

Monday, March 18th 2024

Support for regulation

REINZ has emphasised the need for property management regulation to Parliament’s Social Services and Community Committee.

A better investment market

Thursday, March 14th 2024

A better investment market

“Reinstatement of interest deductibility starting from the new tax year on 1 April brings property investors back in line with every other business in the country, where interest costs are a legitimate deductible expense," Tim Horsbrugh, New Zealand Property Investors Federation (NZPIF) executive committee member says.

[OPINION] Recessionary times

Thursday, March 14th 2024

[OPINION] Recessionary times

It is not the best out there for many businesses and property sector people. Sales are down across the board, our clients’ confidence is falling, and there is a lot of uncertainty.

Interest rate expectations: It’s not over yet

Thursday, March 07th 2024

Interest rate expectations: It’s not over yet

Most Kiwis think interest rate increases have peaked.