Trusts vs Direct Ownership: Pros and Cons for Irish Investors

Introduction

Irish investors are increasingly looking beyond the Emerald Isle for property opportunities – from holiday homes in Spain to rental apartments in Portugal or commercial blocks in the United Arab Emirates. While buying a property outright (direct ownership) is the most straightforward route, many investors consider setting up a trust to hold the asset.

Both structures have distinct tax consequences, inheritance implications and administrative burdens. This article breaks down the key differences, highlights the pros and cons of each approach, and offers practical guidance for Irish residents, expatriates and diaspora investors who are weighing their options in 2025.

1. How the Two Structures Work

Aspect	Direct Ownership	Trust Ownership
Legal title	The investor’s name appears on the title deed.	The legal title is held by a trustee (individual or corporate) for the benefit of one or more beneficiaries.
Control	Full control – the owner can sell, mortgage or remodel at will.	Control rests with the trustee(s) as set out in the trust deed; beneficiaries may have limited or no direct decision‑making power.
Creation cost	Simple conveyancing fees and stamp duty.	Requires a trust deed, legal advice, and often a registration fee for the trust (e.g., with the Irish Companies Registration Office if a corporate trustee is used).
Ongoing administration	Annual self‑assessment tax return, possibly a property tax return.	Annual trust tax return (Form DT1), filing of accounts, and compliance with the Discretionary Trust Tax (DTT) regime (6 % one‑off charge + 1 % annual charge).

2. Tax Implications

2.1 Income Tax on Rental Income

Direct ownership – Rental income from a foreign property is taxed in Ireland on a remittance basis. The net amount (after allowable expenses) is subject to the standard Irish income‑tax rates (20 % up to €40,000, 40 % above). Double‑taxation relief may be claimed under the relevant treaty.
Trust ownership – Income earned by a discretionary trust is taxed at the trust rate of 45 % (as of 2025). The trust can distribute income to beneficiaries, who then include the distribution in their own tax returns, potentially reducing the effective rate if beneficiaries are in lower brackets. However, the initial 6 % DTT charge and the annual 1 % charge apply irrespective of income.

2.2 Capital Gains Tax (CGT)

Structure	CGT Rate	Key Points
Direct ownership	33 % (standard Irish CGT)	Gains are calculated on the difference between disposal proceeds and the original cost (including acquisition costs). Reliefs such as foreign CGT relief may reduce the liability if foreign tax has been paid.
Trust ownership	33 % on gains realized by the trust, plus DTT	The trust pays CGT on any disposal. If the gain is distributed, beneficiaries may be liable for Capital Acquisitions Tax (CAT) on the receipt, subject to the beneficiary’s CAT exemption threshold (€335,000 in 2025).

2.3 Discretionary Trust Tax (DTT)

The Revenue Commissioners levy DTT on all discretionary trusts:

Initial charge: 6 % of the market value of the assets transferred into the trust (payable within 30 days of creation).
Annual charge: 1 % of the market value of the trust assets, payable each year on the anniversary of the trust’s creation.

Exemptions exist for certain charitable or pension‑related trusts, but a typical investment trust will incur these charges.

2.4 Inheritance and Gift Tax (Capital Acquisitions Tax – CAT)

Direct ownership – When the owner dies, the property forms part of the estate and is subject to CAT at 33 % on the value exceeding the parent‑to‑child exemption (€500,000 in 2025). Irish residents can claim a principal private residence exemption if the property was their main home, but this does not apply to overseas assets.
Trust ownership – Assets remain in the trust, so they are outside the estate for CAT purposes. However, any distribution from the trust to a beneficiary is treated as a gift and may attract CAT unless covered by the beneficiary’s exemption.

2.5 Stamp Duty and Transfer Costs

Direct ownership – Stamp duty on foreign property varies by jurisdiction (e.g., 6 % in Spain, 1 % in Portugal). Irish stamp duty does not apply to overseas acquisitions.
Trust ownership – The transfer of property into a trust is treated as a disposal for tax purposes in the jurisdiction of the property, potentially triggering local stamp duty and capital gains tax at the point of transfer.

3. Legal and Administrative Considerations

3.1 Asset Protection

Direct ownership – The property is exposed to the owner’s personal creditors. In Ireland, a judgment creditor can obtain a charging order over overseas assets in certain jurisdictions, though enforcement can be complex.
Trust ownership – A properly drafted discretionary trust can provide a layer of protection because the legal owner is the trustee, not the investor. Creditors generally cannot attach the trust assets unless the trust is deemed a sham or the trustee acts improperly.

3.2 Succession Planning

Direct ownership – Transfer on death requires probate, which can be time‑consuming and costly, especially when foreign probate is involved.
Trust ownership – The trust continues after the settlor’s death; beneficiaries receive assets according to the trust deed without the need for probate. This can be a smoother route for multi‑generational wealth preservation.

3.3 Reporting and Compliance

Direct ownership – Annual self‑assessment, foreign rental income return, and foreign bank account reporting (FATCA/CRS).
Trust ownership – In addition to the above, trusts must file Form DT1, maintain proper accounts, and meet the DTT filing deadlines. Failure to file on time incurs a surcharge (up to 5 % of the charge).

3.4 Financing

Direct ownership – Most foreign lenders will accept a personal mortgage, often with a lower loan‑to‑value (LTV) ratio (typically 60‑70 %).
Trust ownership – Lenders may be reluctant to lend to a trust, or may require a corporate guarantee, which can increase costs and reduce borrowing capacity.

4. Practical Pros and Cons

4.1 Direct Ownership – Pros

Simplicity – Straightforward conveyancing and tax reporting.
Lower ongoing costs – No DTT charges, no need for separate trust accounts.
Financing flexibility – Easier to obtain mortgages from foreign banks.
Transparency – Clear ownership record, useful for resale.

4.1 Direct Ownership – Cons

Estate‑tax exposure – Property forms part of the estate for CAT.
Limited asset protection – Vulnerable to personal creditors.
Potential double tax – Income taxed in Ireland and possibly in the property’s jurisdiction (though treaties mitigate this).
Succession delays – Probate can be lengthy across borders.

4.2 Trust Ownership – Pros

Estate planning – Assets stay outside the estate, avoiding CAT on death.
Asset protection – Legal separation from the settlor’s personal liabilities.
Controlled distribution – Trustee can manage when and how beneficiaries receive income.
Privacy – Trusts are not always publicly registered, offering discretion.

4.2 Trust Ownership – Cons

Higher tax burden – DTT (6 % + 1 % annually) plus 45 % trust income tax.
Administrative complexity – Annual accounts, Form DT1, and professional fees.
Financing challenges – Lenders may impose stricter terms or refuse to lend.
Potential double taxation – Gains taxed by the trust and again on distribution (CAT).

5. When to Choose Each Structure

Situation	Recommended Structure
First‑time overseas buyer looking for a holiday home, with modest rental income.	Direct ownership – lower cost and easier financing.
Investor with multiple properties across several jurisdictions, concerned about inheritance tax.	Trust ownership – consolidates assets and simplifies succession.
High‑net‑worth individual seeking strong asset protection from potential litigation or business risks.	Trust ownership – provides a legal shield.
Investor planning to gift property to children while still alive.	Trust ownership – avoids immediate CAT and allows staged distributions.
Investor who wants to maximise cash flow and is comfortable with higher personal tax exposure.	Direct ownership – avoids the 45 % trust tax rate.

6. Real‑World Example

Scenario:
Siobhán, a Dublin‑based accountant, purchases a €500,000 beachfront apartment in Malta. She expects €30,000 gross rental income per year.

Direct ownership – After allowable expenses (€7,000), taxable income is €23,000. At a 40 % marginal rate, tax payable is €9,200. No DTT. She can claim Maltese tax paid (typically 15 %) and receive a credit of €3,750, leaving an Irish net tax of €5,450.
Trust ownership – The property is placed in a discretionary trust. The trust pays 45 % tax on €23,000 = €10,350. DTT initial charge (6 % of €500,000) = €30,000, plus the first annual charge (1 % = €5,000). Even if the trust distributes the net income to Siobhán, she would still face CAT on the distribution (33 % on any amount exceeding her €335,000 exemption, which is unlikely here). The total outlay in the first year is roughly €45,350 versus €5,450 for direct ownership – a stark illustration of the cost difference.

Takeaway: For a single rental property with modest income, direct ownership is usually far more tax‑efficient. Trusts become attractive when the focus shifts to long‑term succession, asset protection, or when the portfolio size justifies the overhead.

7. Key Steps for Irish Investors

Define objectives – Is the priority cash flow, inheritance planning, or protection?
Seek specialist advice – Engage a solicitor experienced in both Irish tax law and the jurisdiction of the property.
Run the numbers – Compare the total cost of ownership (tax, DTT, financing, legal fees) over a 5‑10 year horizon.
Consider the jurisdiction’s treaty network – Ireland has double‑tax treaties with Spain, Portugal, Italy, the UAE, and many others; these affect both income tax and CGT relief.
Set up the structure – If a trust is chosen, draft a clear trust deed, appoint a reputable trustee, and register the trust where required.
Maintain compliance – Keep accurate records, file Form DT1 on time, and file Irish self‑assessment returns for foreign income.

Conclusion

Both direct ownership and trust ownership have legitimate places in an Irish investor’s overseas property strategy. Direct ownership offers simplicity, lower ongoing costs and easier financing – ideal for first‑time buyers or those focused on cash flow. Trusts, while more expensive and administratively demanding, provide powerful tools for inheritance planning, asset protection and multi‑generational wealth preservation.

The decision hinges on your personal circumstances, long‑term goals, and tolerance for additional tax and compliance obligations. By analysing the tax impact, understanding the legal nuances, and seeking professional advice, Irish investors can choose the structure that best aligns with their financial aspirations and secure a smoother, more profitable overseas property journey.