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  • Profile photo of PosEnterprisesPosEnterprises
    Member
    @posenterprises
    Join Date: 2006
    Post Count: 290
    January 23, 2007 - 7:17 am

    Hi can someone explain in basic english the refinancing principle with regard to HDT. I have read Trust Magic but i am still missing something.

    Is it if i borrow for an asset eg property and i buy special income units in the trust, the trust buys property at X value and then 2 years time for example i get it revalued it has gone up to Y value can i then refinance the with a new loan and take out the equity for my own use. Or am i missing the point.

    please explain again

    thanks

    Profile photo of TerrywTerryw
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    @terryw
    Join Date: 2001
    Post Count: 16,436
    January 23, 2007 - 9:13 am

    I think it works because the individual owns units in the trust and the trust is able to borrow to buy these units back. The trust can thus claim a deduction for the interest on this borrowing.

    There is some dispute between accountants on whether the trust needs to buy the units back at market value or if it could buy them back at the same price the unit holder paid. If the property has grown, then you would think the value of the units has grown in proportion. If so, the unit holder may then have to pay CGT. But how do you value units in a private trust?

    Terryw
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