Transferring property titles between family members is a common occurrence. This could be a transfer between partners, a gift to a child, or a sale to a sibling. But did you know there are extra legal requirements involved when transferring property to family? In this article we will discuss the steps involved.
How To Transfer A Title Between Family
There are three parts to any related party property transaction:
- The first part is deciding how to transfer the property, be it by gift, sale, or holding change.
- The second part is determining the Title Office costs and stamp duty fees to allow the transfer as well as possible capital gains tax for the vendor.
- The third part is transferring the property.
We'll first discuss the ways you can transfer property before getting to the tax man.
Gifting Property To Family Member
The first option you can choose is to gift a house to a family member, usually a spouse or a child. To do this all that the Title Office and banks require is to see a executed "Transfer of Land" document and relevant State Revenue Office paperwork. The Transfer of Land is the document that transfers ownership of property from one person to another.
However in order to protect both the transferor (owner) and transferee (acquirer), it safer for the parties to execute a "Deed of Gift" to formalise that there is a gift of property taking place. It is especially important in dealings between family to formalise these matters in order to avoid conflict or confusion in the future. For example arguments could be made that the property is being held "on trust". It is always better to have intentions in writing.
Selling Property To Family
The next option is selling property to a family member. This option is the most similar to a normal conveyance as a Contract of Sale will be entered into between the family members.
Often what happens in these situations is the Contract price is less than the market value of the property. For example a parent may sell their property to their child and make the Contract price just enough to pay off their mortgage and perhaps a bit extra for them. However as we will discuss below, the stamp duty paid and potential capital gains on the property will be based on the market value and not the contract price. It is important to get advice from an experienced conveyancing lawyer in these situations.
Changing Ownership Share Between Family
The final option is changing ownership proportions in already jointly owned property between family members or putting a family member on Title.
For example a husband and wife may own a property as joint proprietors and hold a 50-50 undivided share. It may be a tax effective or a good asset protection strategy for them to change ownership proportions to be tenants in common with a 99-1 share or any other variation. Another common example is a spouse being put onto the Title of the family home. Both of these situations only require a Transfer of Land and for the correct State Revenue Office documents to be drafted.
It is important to note however the laws in Victoria have changed recently regarding changing ownership percentage. Unless the property is your permanent place of residence between spouses, changing ownership proportions will now attract stamp duty. For example changing ownership proportions in an investment property will now attract stamp duty for the party gaining a larger share.
Stamp Duty For Family Property Transfers
Now to the tax man. The State Revenue Office takes a particular interest in related party transactions between family members. Whenever there is a transaction involving family members the State Revenue Office requires you to obtain a valuation from a valuer to determine the market value of the property.
The stamp duty paid on the property transfer will be based on the valuation of market value, not the listed contract price or gift. There are only a few exemptions to the above rule so no stamp duty is paid, such as a transfer of the family home between spouses.
First Home Buyer Duty Concessions
A common question asked by first home owners buying property or receiving a gift from their parents is whether they are still eligible their first home buyer stamp duty concessions. The State Revenue Office's position is that you must pay market value to be eligible for the stamp duty concessions. If you pay less than market value you are not eligible for the stamp duty grant or concession. In the words of a duty assessor I spoke to, "they're already getting a discount from their parents".
Title Office Fees
Another transfer cost to account for is the Title Office fees to be paid by the acquirer. If no money is changing hands such as a gift or change of ownership share, the Title Office will charge you a $87.30 fee in the 2018-2019 financial year. If the property is sold, the title office will charge you a transfer fee based on the contract price listed on the Transfer of Land. If there are mortgages involved there will also be fees for removing and adding a mortgage on a Title.
Capital Gains Tax
If the property being sold, gifted or transferred has not always been the owner's home/main residence and it was acquired on or after September 20, 1985, capital gains tax may also apply. You should seek advice from your accountant in this regard. As with stamp duty capital gains tax is assessed on the market value of the property on transfer date.
Pension and Centrelink
Finally if the transferor is on a pension, the transfer of the property may affect their entitlement to it if used to form part of their asset pool. If you are on a pension this should be clarified before a transaction takes place.
As you can see there is quite a bit to consider when transferring property titles between family members. If you have any questions or need help with the process, please contact our conveyancing Melbourne team with the form below or call 03 9708 5564.
Disclaimer: The contents of this article relate to the laws in Victoria on the date of publication. This content should not be relied upon for legal advice. Please contact us to discuss your individual circumstance.