Gifting property: How to transfer ownership of a house

It may seem like the ultimate gift – passing a piece of property onto a family member. However, there is a lot more to it that just the warm, fuzzy feeling of gratitude. Here are some tips on how to transfer a property title to another family member in Australia.

There are many reasons why people may want to transfer property titles to family members in Australia. Ivan Bezbradica, a lawyer at Victorian-based firm SB Solicitors, said some of those reasons could include 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 out.

“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.

“Other than in divorces, which would be the most common circumstance, the main groups of people that look to transfer property between family are elderly parents to their children instead of leaving the property in their will, couples looking to change ownership shares in investment properties, and parents looking to help out their children.”

But it could pay to know what to look out for when it comes to transferring a property title to someone else.

What is a property title?

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. It’s a good idea to check to see what specific laws apply in the location of the property to be transferred.

Mr Bezbradica said traditionally, a property title used to be paper-based.

“However, now, with the rollout of electronic conveyancing and databases, it is almost all electronically recorded without a paper version of your title,” he said. “Most states and territories have rolled out electronic titles and conveyancing, with the rest soon to follow. You can still get a paper title if you have a ‘clear’ title – with no outstanding mortgage on the database. If you have a mortgage, your bank most likely holds your title in electronic form.”

Can you transfer a property title to a family member?

The simple answer is yes, you can. 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. He said the only difference when transferring to a family member could be in the assessment of stamp duty (see below). However, if there is an existing mortgage over the property, it’s more complex. If the loan is to be transferred, too, the person receiving the home will have to undergo a loan approval process. It could be a wise idea to check with your lending institution before embarking on a title transfer.

What are the pros and cons of transferring a title to a family member?

Mr Bezbradica said it was important for anyone thinking about transferring a property title to consider the effect this could have on their personal financial situation. For example, he said, there could be implications on the amount of tax you have to pay or on any pensions you receive from the government. He said there could also be costs involved with the transfer, such as stamp duty.

Asset protection

Mr Bezbradica said that transferring a property title to a family member could be used when considering an “asset protection strategy” against lawsuits. Appropriate legal advice would be required in this instance. He said there could also be possible tax advantages to the arrangement, however, expert advice was needed to take into account personal circumstances.

Capital gains tax

There could be possible capital gains tax implications involved with transferring the title to a family member, Mr Bezbradica said.

“If a property is gifted or sold to a family member 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. “For example, 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.”

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.

From our friends at Canstar Blue: What is a conveyancer and what do they do?

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

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.

Canstar has a calculator that can help you estimate the cost of stamp duty in your state or territory. 

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.

“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.”

New South Wales

In New South Wales, there are certain exemptions available. No transfer duty is payable if the transfer is between married couples and de facto partners and the house is your principal place of residence, and you could be exempt from paying it if a domestic relationship breaks up and a title transfer is required. However, stamp duty could be payable in other circumstances, such as if the family home is used for other purposes, such as running a business, or if the owners are living overseas.

Victoria

Mr Bezbradica said in Victoria there were limited circumstances where stamp duty exemptions applied, such as “between de facto or married couples for their family home, as part of divorce, a court order, or in circumstances around a deceased estates’.

ACT

In the Australian Capital Territory, stamp duty is called “conveyance duty”. It’s typically not payable when a property is transferred as part of a deceased estate, as described in a Will (or similar legal arrangements – check with a solicitor). However, the stamp duty exemption only applies to the portion of the property the beneficiary was to receive as part of the inheritance. For example, if they are to inherit 70% of the property and want to buy the other 30%, stamp duty would apply to the 30% portion. You may also be exempt if the transfer (of your principal place of residence) is to your partner, or as a result of a court order issued because of a relationship breakup. If a farmer wants to pass land used for primary production on to a younger generation, this transfer may also be exempt from stamp duty.

Queensland

In Queensland, stamp duty is payable unless the transfer of title qualifies for an exemption –such as transferring interest in a principal place of residence to a spouse, or if it’s a result of a court order or agreement after a relationship breakup. It’s a good idea to check this with a qualified solicitor or the appropriate government agency before you begin the transfer process.

Northern Territory

In the Northern Territory, transfer of property title between family members “generally” attracts stamp duty, unless the transfer qualifies for an exemption, according to the NT Government. However, there is usually no stamp duty payable if the transfer is between married or de facto partners, or is the result of a Binding Financial Agreement or court order after a relationship breakup. An exemption is also available if a farm is being passed between family members, or a family-owned company or trust.

South Australia

In South Australia, stamp duty is payable on all title transfers except those deemed to be of “qualifying land”, such as commercial, industrial, recreation and mining land. There is a foreign ownership surcharge payable by overseas residents, of an extra 7% of the value of the property.  Exemptions could apply if the transfer involves removing a name from a title due as a result of the death of one of the joint tenants (a co-owner of the property), or due to a “certified domestic partnership agreement”.

Western Australia

In WA, stamp duty is payable for transfer of titles to family members, unless an exemption applies. An exemption may be available if you are transferring the property title (of a principal place of residence) between spouses or de facto partners (of two years) when you and your partner are the only joint tenants in equal shares. A “nominal transfer duty” fee of $20 may be payable if the title is transferred as a result of a relationship breakdown; or if it is for a deceased estate transaction and the property is being given to someone under the direction of a will or intestacy. The passing of a family farm to another family member may also be exempt from stamp duty in WA.

Tasmania

In Tasmania, there are stamp duty exemptions available “when property is transferred between partners in a marriage, a significant relationship or a caring relationship”, according to State Revenue Office of Tasmania. However, the Office also states: “This exemption does not apply to transactions where property is being transferred from both people in the relationship to one of those persons.” For details of other exemptions, it could be a good idea to consult an expert professional, such as a solicitor.

 

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Feature image: Sundae Morning (Shutterstock)

 

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