What is a trust-and-company structure?

It is a three-layer estate-planning structure: a company (often a newly formed Newco) owns the asset, a discretionary trust owns the shares in that company, and the family are the beneficiaries. The company earns the rent and pays tax on its own taxable profit; what it pays up to the trust afterwards is a dividend, which the trustees can distribute to beneficiaries at their discretion under the dividend and trust-distribution rules. The trustees cannot simply vest the company’s rental income in beneficiaries. The structure is used for estate planning, to separate the asset from the founder’s personal estate, and to provide continuity across generations.

Why use a company AND a trust, rather than just a trust?

A company gives operational flexibility and a 27% income-tax rate on its taxable trading or rental profit (versus a trust’s flat 45% on income it retains), while the trust holding the shares supports the estate-planning and asset-separation goals and keeps the asset out of successive deceased estates. A later dividend to the trust carries its own 20% dividends tax, and the structure does not create automatic protection from every creditor claim. The combination also makes future acquisitions and group reorganisations easier under the corporate roll-over rules.

Is the structure mainly about saving income tax?

No. A trust is taxed harshly (45% on retained income, 36% effective CGT), so the structure is rarely about saving income tax today. It is about estate planning, separating the asset from the founder’s personal estate, and continuity — none of which is automatic; each depends on how the structure is funded and run. Any income-tax efficiency comes from the conduit principle — vesting income and gains that arise in the trust itself in beneficiaries — not from the trust holding income. It does not reach Newco’s own income and gains, which are taxed in Newco.

The Trust-and-Company Structure in South Africa: How It Works & Why People Build It [2026]

What the structure looks like

The structure has three layers, plus the people who benefit:

A company (often a newly formed private company, Newco) owns the asset — here, immovable property.
A trust owns the shares in that company.
The beneficiaries (typically the founder, a spouse, children and often later generations) are those to whom the trustees can distribute income, capital gains or capital.

Trust structure

The three parties to a South African trust

Governed by the Trust Property Control Act 57 of 1988. The founder may also be a trustee and a beneficiary. What must be avoided is one person being both the sole trustee and the sole beneficiary; the deed, the Master’s requirements and each trustee’s written authority decide who must be in office.

A properly established and administered trust can separate trust property from a trustee’s personal property and can support succession planning. It does not create automatic protection from all creditor claims: any loan owed to the founder, vested entitlement or relevant retained power must be considered separately. The Trust Property Control Act keeps trust property separate from the trustee’s own estate:

Source — the actual words

Trust property shall not form part of the personal estate of the trustee except in so far as he as the trust beneficiary is entitled to the trust property.

Trust Property Control Act 57 of 1988, s 12 — separate position of trust propertyRead it on Dept of Justice PDF

Meet the players — and why they are nearly always “connected persons” to one another — on the players & connected persons.

Why people build it

The structure is about four longer-term goals, not income tax today:

Pegging the estate. Once the property sits under the trust, its future growth accrues to the trust, not the founder — which is meant to cap the founder’s dutiable estate (though the loan account they take out stays in it, with any interest owed on it, and the result depends on proper trust administration, any vested entitlement and any powers the founder retains). Estate duty is 20% on the dutiable estate to R30 million and 25% above.
Asset protection. The trust, not the founder, owns the shares, so the asset is generally beyond the founder’s personal creditors (TPCA s 12, above) — but the shares (until they reach the trust) and the loan claim (for as long as it is outstanding) remain assets in the founder’s own estate and reachable by his creditors. Ring-fencing the property is not the same as ring-fencing the family’s value, and any absolute protection claim needs its own insolvency and trust-governance review.
Continuity and flexibility. A trust does not die, so the asset need not be transferred and re-taxed on each death; a discretionary trust lets the trustees decide each year who receives what.
Provision for family across generations.

Every one of these benefits depends on the trustees exercising their powers properly under the deed and the law, rather than treating trust property as the founder’s own. The founder need not give up every practical role, and appointing an independent trustee does not by itself cure defective administration — see trustees’ duties and the independent-trustee rule.

The headline trade-off

A trust that keeps income is taxed at a flat 45% — the highest rate in the system — and pays capital gains tax at an effective 36%. An individual is taxed on a sliding scale and pays CGT at up to 18% (the maximum effective rate); a company pays 27% income tax on its taxable profit (not on gross rent) and 21.6% effective CGT. Keep the taxpayers straight: in this structure it is Newco that sells the property, so the company’s 21.6% applies to that gain (plus 20% dividends tax when the after-tax gain is paid up as a dividend — about 37.28% of the capital gain in all, not of the whole sale price); the trust’s 36% applies to gains on assets the trust itself sells, such as the Newco shares. Newco’s income and gains are taxed in Newco. Paying its after-tax profits up to the trust does not move that company-level gain to the beneficiaries; the dividend has its own tax treatment. The conduit principle works one level up: income and gains that arise in the trust itself — for example a gain when the trust sells the Newco shares — can usually be vested in beneficiaries in the same year and taxed in their hands, often at lower rates, if the statutory conditions are met and the attribution rules do not apply. The catch — and the rest of this guide — is the web of rules that decides when that works.

Two of those rules changed for years of assessment starting on or after 1 March 2026. Section 25B(1), as substituted by the Taxation Laws Amendment Act 5 of 2026, now makes the flow-through expressly subject to the attribution rules in section 7(2) to (8), and a resident trust’s income flows through only to a resident beneficiary with a vested right — income vested in a non-resident beneficiary is taxed in the trust. The same Act amended section 7(5) and (6): income is attributed back to the person who made the donation or other disposition under section 7(5) only if that person is a resident when the income accrues or is received (whichever is earlier), and under section 7(6) only while that person keeps the power to revoke or redirect the beneficiary’s right and is a resident. See minor children & attribution.

Assumptions behind these rates. These illustrations assume an ordinary South African company or ordinary trust, capital rather than revenue treatment where stated, the specified marginal rates, no relevant exemption or treaty reduction, and no available losses or other adjustments. Individual CGT is shown at the maximum effective rate. Actual tax depends on the taxpayer and the transaction.

The Nkosi family — our running example

The asset is normally moved in under a section 42 asset-for-share transaction: Thabo transfers the property to Newco and, in exchange, Newco issues him shares. Because he ends up holding a qualifying interest (here, 100% of Newco), the relief deems the disposal to happen at base cost — so the built-in R4 million gain is deferred, not forgiven, and Newco inherits the same base cost.

Holding the shares is not the whole test. Check the parties’ eligibility and residence; the asset’s value and tax character in both hands; the issue of qualifying equity shares; the applicable qualifying-interest or full-time-service requirement; any cash, debt or other consideration; and the exclusions and later-event rules. An ordinary family trust can be a transferor, but it cannot receive an asset under section 42 in place of the qualifying company — which is why the property goes to Newco and the shares reach the trust in a separate, taxable step.

Source — the actual words

“asset-for-share transaction” means any transaction— (a)(i) in terms of which a person disposes of an asset …, the market value of which is equal to or exceeds— (aa) in the case of an asset held as a capital asset, the base cost of that asset on the date of that disposal …, to a company which is a resident, in exchange for the issue of an equity share in that company and that person— (A) at the close of the day on which that asset is disposed of, holds a qualifying interest in that company; or (B) is a natural person who will be engaged on a full-time basis in the business of that company … of rendering a service; …

Income Tax Act 58 of 1962, s 42(1) — definition of “asset-for-share transaction” (extract)Read it on Law Library

Source — the actual words

… where a person disposes of an asset to a company in terms of an asset-for-share transaction— (a) that person must be deemed to have— (i) disposed of that asset— (aa) … for an amount equal to the [base cost / section 11(a) or section 22 amount] …; and (ii) acquired the equity shares in that company on the date that such person acquired that [asset] …

Note — This is the deferral: no gain arises on the transfer, and the company takes over the transferor’s base cost and acquisition date. The deferred gain surfaces later — when Newco sells the property, or the shares change hands. The full mechanics are on the section 42 page.

Income Tax Act 58 of 1962, s 42(2)(a) — the roll-over relief (extract)Read it on Law Library

Worked example · the Nkosi family

The Nkosi structure, reconciled step by step

This is a conditional illustration, not a tax bill. One set of assumptions runs through every page of this guide: Thabo is taxed at the top marginal rate; property worth R6 million, base cost R2 million, held as a capital asset; the R1 million bond settled by Thabo before the transfer (the variant where Newco takes it over is dealt with below); transfer-duty scale from 1 April 2025 (Rates Act 3 of 2026); official rate of interest 7.75% to 31 May 2026, 8% from 1 June to 30 September 2026 and 8.25% from 1 October 2026 (the repo rate rose to 7.25% on 25 September 2026) — the rates known at 29 September 2026, assumed unchanged to 28 February 2027; annual donations-tax exemption R150 000 (fully unused) and CGT annual exclusion R50 000 (both SARS-published, from clauses 9 and 15 of the 2026 Draft Rates Bill; promulgated amendment not located as at 29 September 2026 — the enacted figures are R100 000 and R40 000, so confirm legislative status and commencement before implementing); effective CGT rates up to 18% (individual maximum) / 21.6% / 36%. The Newco shares are given the same R6 million value as the property purely as an illustrative valuation assumption: share value is not automatically the gross property value, and debt, other assets and liabilities, share rights and the valuation evidence all matter.

The Nkosi restructure: position before and after each step
Item	Position on these assumptions
Step 1 — property into Newco (s 42)	Thabo disposes of the property at its R2m base cost: no CGT now. Newco takes the property at R2m. Newco issues all its shares to Thabo; his base cost in the shares is R2m (s 42(2)(a)(ii)). Transfer duty exempt under s 9(1)(l)(i) on the public officer’s affidavit; no STT on an issue of shares.
Newco’s contributed tax capital	R2m, not R6m: s 42(3A) fixes the CTC on a s 42 share issue at the asset’s tax cost. A later return of that capital is not a dividend, but it reduces the shareholder’s base cost and any excess over base cost is a capital gain (para 76B).
Step 2 — Thabo sells the Newco shares to the trust	A disposal at market value (R6m) against a base cost of R2m: R4m capital gain, about R711 000 of tax at the top rate (after the R50 000 annual exclusion, 40% inclusion, 45%; R712 800 with the enacted R40 000 exclusion). The trust owes Thabo R6m on loan account — the trust is the debtor, not Newco. A donation instead is the same disposal (para 38) plus donations tax of about R1 170 000.
Transaction taxes on Step 2	Assuming the rental property is a dwelling (“residential property” for transfer duty), Newco is a residential property company, so the trust’s acquisition of the shares is an acquisition of “property” for transfer duty on the property’s fair value, bond ignored: about R437 356. STT is exempt under s 8(1)(n) because the acquisition is subject to transfer duty. No s 9(1)(l) exemption applies here — this is not a s 42 transaction.
Section 7C on the R6m loan	2026/27 year (1 March 2026 to 28 February 2027): R6m × (7.75% × 92/365 + 8% × 122/365 + 8.25% × 151/365), simple interest calculated daily = about R482 425 deemed donation; less R150 000 exemption = R332 425; 20% = about R66 485. This is on the rates known at 29 September 2026 and assumes the balance stays unchanged — a further repo change before 28 February 2027 changes it again. On a full year at 8.25% (the rate from 1 October 2026): R495 000 and R69 000. The figure follows the official rate for each period, not the loan balance alone.
Final ownership	Trust owns 100% of Newco; Newco owns the property at a R2m base cost. Thabo holds a R6m loan claim against the trust — an asset in his estate, and reachable by his creditors. The claim does not grow with the property, but its value in his estate is not an unconditional cap: any interest owed on it, other assets he keeps, how the trust is run and any powers he retains all matter. Future growth above R6m accrues to the trust.

Check the 18-month rules before Step 2 follows Step 1. Section 42 is conditional relief, and two separate 18-month rules can change this schedule. Under s 42(5), if Thabo sells the shares within 18 months and more than half the value of what he moved into Newco was allowance assets or trading stock, the sale proceeds (up to the shares’ market value at the start of the 18 months) are taxed as income, not as a capital gain — so first establish whether tax allowances were available on this rental property. Under s 42(6), a person who stops holding a qualifying interest within 18 months is treated as having sold and bought back any shares still held at their market value on the date of the section 42 transfer — a rule that can apply without any sale (a dilution, for example) and that has its own exceptions, including certain corporate-rule transactions, involuntary disposals and death. Neither rule means every sale within 18 months reverses the relief; both must be tested on the facts, along with the valuation and the order of the steps.

If Newco takes over the R1 million bond instead, two rules decide the tax. Where the bond was raised when Thabo bought the property, or more than 18 months before the transfer (or refinances such a bond), s 42(8) applies: the assumption is not treated as consideration now, but when Thabo later disposes of his Newco shares (held as capital assets), the R1 million is treated as a return of capital on them that accrues immediately before the disposal. Model what that does to his base cost in the shares under the Eighth Schedule’s return-of-capital rules (para 76B), and value the shares with the debt now sitting in Newco, before agreeing to it — see the section 42 page. Where the bond was raised within 18 months for some other purpose, the assumption is consideration other than shares and s 42(4) taxes that part of the transfer now. The bank’s consent to the transfer is a conveyancing requirement; it does not decide the tax.

Section 42 leaves the property already inside Newco, but it leaves the shares with Thabo. Getting them to the trust is a second transaction: a disposal by Thabo with its own CGT (the R4 million gain in the schedule) and transfer duty for the trust. Two common ways to fund it are an outright donation and a loan. A donation removes the need for repayment but can create donations tax, disposal taxes and continuing attribution consequences; a loan leaves a claim in the lender’s estate and needs an interest and section 7C analysis. The trust’s purchase is usually funded by loan — and an interest-free or soft loan to a connected trust falls under the section 7C anti-avoidance rule, which treats the foregone interest as an annual deemed donation:

Source — the actual words

If a trust or company incurs— (a) no interest in respect of a loan, advance or credit referred to in subsection (1), (1A) or (1B) …; or (b) interest at a rate lower than the official rate of interest, an amount equal to the difference between the amount incurred … as interest … and the amount that would have been incurred … at the official rate of interest must, for purposes of [the donations tax Part], be treated as a donation made to that trust by the [lender] on the last day of that year of assessment …

Note — The deemed donation each year is the interest shortfall (interest at the official rate for each period, less interest actually incurred). It can be sheltered by the R150 000 annual donations-tax exemption (SARS-published, from clause 9 of the 2026 Draft Rates Bill; promulgated amendment not located). The detail is on funding: donations & loans.

Income Tax Act 58 of 1962, s 7C(3) — the deemed donation (extract)Read it on Law Library

Build it, step by step

The restructuring guide follows the life of the structure from beginning to end: moving the asset in, funding it, running it, and keeping it compliant. Start anywhere.

The restructuring guide · 15 guides

Inside the structure