With house prices still on the rise, it is now a growing trend for families to think about transferring property to grown-up adults still living at home.
These type of dealings might seem simple, but it is an area which come with many traps and complications.
If the matrimonial home is just in one partner’s name, a transfer into joint names is free of stamp duty, which can be a big saving. However, if the property has at some stage been an investment property, a transfer of a half share might trigger a Capital Gains Tax liability. Expert legal advice needs to be sought in such a case.
Parents often like to help adult children get a start, by giving them money or property. Unfortunately, such generosity can have drawbacks for the parents in later life if they claim “Centrelink Pensions”. Any excess gift will still be treated as an asset for the purposes of the asset test, so making gifts to get yourself, under the pension asset limit may not work.
If the parents are financially comfortable and decide to give an investment property to a family member, the stamp duty situation is simple – it does not matter whether it is a gift, or a sale at a special price. The stamp duty is based on the value of the property, and where it is a related party transaction, an independent valuation is required
Where the property is an investment property acquired after 1985, it will be liable for Capital Gains Tax on a sale, whether the sale is within a family or not. The amount of any tax will need to be taken into account by the parent when making decisions.
One area for families to beware of, is where parents guarantee a loan for a child, to help them buy a business, or to buy a home where the child cannot save enough themselves for a deposit.
At Barwick Boitano, we have come across cases where the child defaults, the lender calls on the parent’s guarantee, and the parents do not have the ability to pay up without selling their own home.
If you, as a parent, are asked to give a guarantee, treat it as a business transaction, you need to get expert legal advice about the terms of the guarantee, and make sure a maximum liability is stated. Have the financial viability of your child’s proposal checked out, and have legal agreement with your child about the transaction.
Another growing trend is “granny flats” which may seem like a simple solution for an elderly relative, but this too requires a legal agreement, which will cover matters such as ongoing occupancy rights, expense sharing, any restrictions on sale, any adjustments to inheritances and on sale or death, how much will each party receive.
At Barwick Boitano, we have been serving our clients and the people of Parramatta and surrounding areas for over 20 years, giving advice on such matters.
If you are contemplating any transfer of property, or are looking into living arrangements for elderly parents, you need to seek expert legal advice and have the correct documents drawn-up and in place to avoid any future heartache down the track.
Contact Frank Botanio, Principle of Barwick Boitano today for an appointment on
Conveniently situated close to public transport and easy parking available.