By Clinton McDonald, Managing Director, Gauld Tulloch Bove
Feeling frustrated by limited investment capital and the tax bite shrinking your returns year after year? You’re not alone. As an investor, whether you’re an individual looking to grow your wealth or an SMSF trustee seeking diversified options, these challenges are all too common.
But what if there was a way to pool your resources with like-minded investors, gain access to a wider range of assets, and potentially even reduce your tax burden? Unrelated Geared Unit Trusts (UGUTs) could be the tax-effective investment strategy you’ve been seeking.
Understanding Unrelated Geared Unit Trusts (UGUTs)
UGUTs are a unique investment in assets you might not be able to afford individually. Imagine co-owning a slice of prime commercial property or a diversified share portfolio with a group of fellow investors – all while enjoying the professional management of the trust.
- The Leverage Effect: UGUTs can borrow funds to amplify your investment power and wealth creation. This means you can potentially achieve higher returns than you would with your own capital alone.
- Tax-Smart Structure: UGUTs are designed with tax efficiency in mind. The income generated by the trust’s assets can be distributed to unit holders in a way that optimises their individual tax positions. Plus, you may be able to claim deductions for interest expenses on the trust’s borrowings.
Considerations
- Complexity: UGUTs can have intricate structures and tax implications that require careful understanding and expert guidance.
- Risk: The use of leverage increases the potential for higher returns but also amplifies the risk of losses.
- Gearing Costs: Interest expenses on borrowed funds can reduce overall returns if not managed carefully.
UGUTs and SMSFs: A Powerful Partnership for Growth
As an SMSF trustee, you’re constantly seeking wealth-creation opportunities that align with your fund’s objectives and comply with complex regulations. UGUTs can be a valuable addition to your SMSF’s portfolio, offering diversification benefits and potential tax advantages.
Here’s a key point to note: even though UGUTs involve borrowing, your SMSF can still invest in a non-related UGUT, even if that UGUT uses the asset as security for the loan. This opens up a world of new investment possibilities for your SMSF, allowing you to leverage your existing assets and diversify your holdings.
Tax-Effective Investment Strategies with UGUTs
UGUTs offer a range of tax-effective investment strategies that can help you keep more of your returns:
- Income Splitting: By distributing income to unit holders with lower marginal tax rates, you can potentially reduce your overall tax burden.
- Deductions for Interest: If the UGUT borrows money to invest, the interest expenses may be tax-deductible, further enhancing your after-tax returns.
- Capital Gains Tax (CGT) Concessions: Depending on the assets held within the UGUT, you may be eligible for CGT discounts, reducing your tax liability when you sell units.
GTB’s Expertise in UGUTs
GTB’s Tax & Business Advisory team assess your financial objectives and risk tolerance to determine if Unit Trusts (UGUTs) are a suitable investment for you. With our proven growth framework, we create personalised investment plans designed to maximise tax-efficient returns and effectively manage risk, while ensuring compliance with all relevant regulations. Our tax advisory services are here to help you navigate the complexities of UGUTs and other investment strategies, ensuring you make informed decisions that align with your financial goals
“UGUTs seemed complex at first, but GTB explained the structure and benefits clearly, helping us make informed investment decisions.”
