How to transfer property to family or friends

Can I gift a house to another person in Australia?

Yes, it is possible to gift a house to a family member, friend or another person in Australia, usually via a transfer of a property title.

Ivan Bezbradica, a lawyer at Victorian-based firm SB Solicitors, said there are many reasons why people may want to transfer property titles, including a parent wanting to pass on an early inheritance; for tax purposes; as a way to protect assets; and as a gift to help a family member or a friend. However, there are several factors that should be considered before doing so, such as stamp duty and tax implications.

“I get an enquiry about transferring titles between family members at least once every other day,” Mr Bezbradica told Canstar.

“So it is a common transfer people are looking for. However, once people realise stamp duty generally has to be paid, in most circumstances they won’t move forward.”

Mr Bezbradica said the main groups of people enquiring about transfer property between family members are:

• divorcing couples (which he says is the most common circumstance)
• elderly parents to their children instead of leaving their property in a will
• couples looking to change ownership shares in investment properties
• parents looking to help out their children.

If you are considering gifting property to another person, it could be a wise idea to seek professional advice.

How to gift a property to family

Transferring a title between family members is the same process as any other property transfer, Mr Bezbradica said, where one person is taken off the title and another is added on.

While the decision to gift your property to your child or another family member may be driven by love and care, it’s important to remember that transferring property—even to family, with or without any money involved—is still a formal legal process. It generally follows the same steps and legal requirements as a standard property transfer, including:

• Preparing and lodging a transfer of land document with the relevant state or territory land registry.
• Obtaining a property valuation to establish the market value for tax and duty purposes.
• Paying applicable stamp duty, which is usually calculated on the property’s market value, regardless of whether money changes hands (though. However, there may be some exemptions depending on the circumstances, such as when the transfer is between spouses or part of a legal separation).
• If there’s an ongoing mortgage on the property, lender’s approval may be required, as the mortgage must be discharged or transferred.

It could be a wise idea to check with your lending institution before embarking on a title transfer, and also seek professional advice about possible tax and other financial implications.

Is capital gains tax (CGT) applicable when gifting property to children?

There could be possible capital gains tax implications involved with transferring a property title, Mr Bezbradica said, and there are some important things to be wary of when it comes to the transfer of property from parent to child in Australia.

“If a property is gifted or sold for less than its true value, capital gains tax is assessed on the market value (what it would sell for on the open market) of the property, not the money that changed hands,” he said.

The Australian Taxation Office (ATO) treats gifting or selling property to a family member for below market value as a disposal, and CGT is calculated using the market value at the time of transfer, not the price paid. This applies whether the sale price is zero (such as when you gift a property) or just below market value. However, if the property transfer is to your former spouse as part of a legal separation or to the trustee of a special disability trust for no payment, you may be exempt from paying CGT.

Mr Bezbradica shares an example. “Say if a parent gifts an investment property to a child, they may get an unexpected capital gains bill from the ATO if they didn’t plan this out properly. In these circumstances, I sometimes draft a Deed for clients that states the child will pay for the parents’ capital gains tax, but it varies from case to case.”It’s important to note that while a deed may dictate the terms between the parties, it doesn’t typically change the depositor’s (the one who is transferring the property) liability to the ATO.

How CGT is calculated may also depend on how the property was used before it was transferred. For example, if the property you are gifting is your main place of residence and was never used to produce income, you may be eligible for a CGT exemption. But if a part of the property was used to produce income, then there may only be partial exemption. It is important to check with an advisor to understand your exact tax liability when gifting property to children or transferring to other family members.

Impact on government pensions

“Elderly clients also have to be careful with their pension entitlements,” Mr Bezbradica warned.

“If you gift a property to a family member, Centrelink will still count the market value of the property as (the equivalent of) income, even if no money has changed hands.

“This income will then be added onto your asset test for pension entitlements that may, in turn, reduce the amount of money you can get from the pension, or in some cases it may make you completely ineligible to receive the pension. The same principle applies when selling property for less than market value.

“If you have a pension, you should check with Centrelink how transferring your property will impact your entitlements before you go ahead with it.”

The Department of Human Services has rules around gifting, which could impact pensions. The government may also consider whether or not you have a “granny flat interest” in the home, which is an arrangement where you transfer the title of your home to someone else but retain the right to live there for life.

The Department recommends obtaining legal and financial advice about these matters if you receive a pension.

The pros and cons of transferring a title to a family member or a friend

When you buy, sell or mortgage a property, that change needs to be recorded by the government.

A property title is an official record of who owns land, and can include details about any mortgages, covenants, caveats and easements, according to the Australian Government. Each state and territory is responsible for keeping its own central register of titles, which is why the fees and laws around titles and their transfer can often vary between locations.

Mr Bezbradica said it was important for anyone thinking about transferring a property title to consider the effect this could have on their own personal financial situation.

For example, there could be implications on the amount of tax you have to pay, such as capital gains tax, or on any pensions you receive from the government. There could also be costs involved with the transfer, such as stamp duty. Transferring a property title could also be used when considering an “asset protection strategy” against lawsuits, which Mr Bezbradica flagged could have possible tax advantages to the arrangement, but seeking appropriate legal advice would be required in this instance.

It can also help to consider how the transfer might impact your broader financial situation. For example, gifting property may affect your eligibility for government benefits, such as the Age Pension.

Finally, you may want to think about the emotional aspects involved in transferring property to family members. While the intention may be to support a child, relative, or friend, property transfers can sometimes lead to misunderstandings, especially when all parties are not fully informed. Getting advice from a professional can ensure the process is clear and properly managed.

Is stamp duty payable on a property gifted to a family member or another person?

Stamp duty—sometimes called transfer duty— is a fee that the government charges to make a change to a title. It is typically calculated according to the type and value of the property.

Mr Bezbradica said that’s why an official property valuation is usually required prior to any title transfer.

However, if you are transferring the title to a family member, an exemption could apply in a limited range of circumstances. Each state and territory has different rules when it comes to stamp duty and exemption, he said, so it could pay to obtain expert advice from someone used to dealing with your state or territory’s laws in this area, such as a local conveyancing solicitor.

Can I transfer property without paying stamp duty?

Unfortunately, stamp duty is typically payable in the “vast majority” of property title transfers, including transfer of property to family, Mr Bezbradica said.

He said he had many clients who incorrectly assumed they were automatically exempt from paying stamp duty just because they were transferring a property to a relative, but this is usually not true.

However, there are some exceptions (discussed below), especially around transferring titles to spouses.

“They believe stamp duty does not need to be paid as they already paid it (when they originally purchased the property)—but this is not the case in the vast majority of circumstances,” he said.

“Stamp duty is paid every time ownership changes over a property, except in limited circumstances. And stamp duty is calculated on the market value of the property and not the contract price or gift status.”