Transfer of property ownership between related parties8 December 2021 in Property and Conveyancing Law
Transferring ownership of property between related parties can be a more cost effective and efficient method of transferring property.
Who is a related party?
A related party for the purpose of the transfer of property ownership can include spouses, family members or people in a business or personal relationship. In certain circumstances and where the property transfer is properly structured the transfer may be exempt from stamp duty, she of which are described below.
- A property settlement as a result of a divorce or de facto separation.
- A deceased estate when a property is transferred to a beneficiary.
- A transfer between spouses when one spouse is added to the title.
- A transfer to correct an error or fraudulent transaction.
What are the benefits of your transfer of property ownership to a related party?
In certain circumstances as listed above the transfer of property ownership to a related party can be exempt from stamp duty pursuant to Part 7 of the Duties Act 1997 (NSW). It is important to seek legal advice and that the transfer is properly structured to ensure that an exemption from stamp duty can be achieved.
Stamp duty and the transfer of property ownership between related parties
Subject to the above stamp duty is generally required for related party transfers of property, regardless if the property is being acquired as a gift. If the property is being transferred as a gift or below the market value, a valuation report from a registered property valuer is necessary. The stamp duty payable is based upon the market value of the property stated by this report and the share of the property which is transferred.
Exemptions and concessions to transfer duty:
Transfer between married couples and de factor partners
There is no stamp duty payable in the instance of a transfer of a residential land between a married couple or a de factor partners and the transferred property is either the family home (principal place of residence) or vacant land which is intended to be used as the site of a family home.
If a person eligible for the exemption of transfer duty is a foreign person, the person is still obliged to pay a surcharge purchaser duty of 8% of the value of the transferred property. A foreign person is generally a person or company who is not ordinarily a resident in Australia and is not an Australian citizen.
Family home used for other purposes
If the family home which is exempt from stamp duty is also used for other purposes, only the part of the house which is used as a residence will be eligible. If the use related to a business or undertaking which is primarily conducted elsewhere and uses no more than one room for the non-residential purpose, the full exemption is still available
Marriage, de facto or domestic relationships break-ups
After a break up of a marriage, de factor or domestic relationship a transfer of any share of the matrimonial home made pursuant to section 90B, C, or D of the Family Law Act 1975 (Cth) will be exempt from stamp duty. The property must be transferred to either of the partners in the relationship, the child or children of either partner or a trustee for the child or children of either partner to be eligible of the exemption. A domestic relationship is where two adults live together with each other to provide care and domestic support but are not married. Matrimonial property is property which is owned by the parties to a marriage or property which is owned by either of them.
What should be considered when transferring property ownership to a related party?
While certain circumstances may allow certain costs to be mitigated, such as the lack of need for a Contract for Sale, the costs of any lawyer’s fees, lodgement fees, title registration and bank fees should be considered before proceeding with the transfer of property ownership to a related party
Capital gains tax, GST and other tax implications may arise due to the transfer of property to a related party.
If property is transferred to a related party, any existing mortgage on the title will need to be discharged. This will generally require that the mortgagee is notified of the potential transaction and a discharge of mortgage and a refinance is arranged
Why BSM Lawyers
Brander Smith McKnight’s expert property and conveyancing lawyers are experienced property and conveyancing lawyers. All property transfers and conveyancing is conducted by lawyers, Brander Smith McKnight does not use conveyancers. Our team of lawyers can assist you in all legal matters relating to the transfer of property ownership to a related party.
Our lawyers understand the anxiety and stress that property matters can cause and work diligently to alleviate the stress by keeping you well informed and explaining legal concepts and processes to you in clear and simple English.
Brander Smith McKnight has offices conveniently located in Sutherland, Parramatta, Wollongong and Sydney CBD.
Should I have a lawyer draft my transfer of property ownership to a related party?
This is because a lawyer can ensure the transfer is drafted correctly and unambiguously in order to avoid complications between the transfer’s parties.
A lawyer can also follow your instructions and consider your circumstances when drafting a your transfer of property ownership to a related party in order to create an agreement that is sufficiently tailored to your situation.
Should I have a lawyer review my transfer of property between related parties?
You may want to consider having a lawyer review your transfer of property ownership between related parties. A lawyer can assist you in understanding the rights and obligations that arise because of the agreement. In addition, a lawyer can help you ensure that the agreement is effective and enforceable.
In a related party transfer of property is a Contract for sale required?
While a Contract for Sale is generally required for the transfer of a property, in certain circumstances, such as when the ownership of the property is to be transferred due to a court order, a Transfer document may be sufficient. Money and time can be saved for all parties involved if the transfer of the property can be completed without the need of a Contract for Sale.
What is a property title?
When a property is bought or sold, the change of the ownership needs to be recorded by the government, this being known as the property title. Each state and territory is relied upon to maintain their own registry of these titles.
Are you able to gift a house to another person in New South Wales?
You are able to gift a house to a family member, friend or another person. Stamp duty would generally still be payable on the market value of the property, not any payment for the transfer of the property.
When is market value used to calculate the capital gains tax?
The market value of the property is used to calculate the capital gains tax related to the property when the property was received for an amount greater or less than the market value of the property and that the parties were not dealing with each other at ‘arm’s length’.
What is dealing at ‘arm’s length’?
Deal at ‘arm’s length’ is when each party acts independently and neither party exercises influence or control over the other in connection with the transaction.
What are the benefits of transferring property to family members?
Some of the main benefits in transferring property to family members include:
Helping a family member get a foothold in the property market; and
Ensuring that a family member receives their future inheritance early.
Certain tax considerations – Protection of assets
Does the main residence exemption from capital gains tax apply in the transfer of property between related persons?
Yes, so long as you are eligible for the main residence exemption from capital gains tax the transfer between related persons will not affect the eligibility to this right.
Do you have to pay fees when you gift a property to a family member?
Yes, there is still paperwork processing fees, legal fees and valuation costs as well as stamp duty and capital gains tax tied to the property unless there are exemptions available.
For more information on how Brander Smith McKnight can assist you in transferring property between related parties, please contact us on 02 8539 7475.
How much does a registered property valuer cost to for a valuation report?
An independent valuation from a registered property valuer will generally cost somewhere between $300 to $900, depending on factors such as where the property is located.
What if the original property owner is on a pension?
If the transferor is on a pension the transfer of the property may affect their entitlement to the pension if the property was the transferor’s residence.
Does the transfer of property between related parties affect the first home buyer duty concessions?
The State Revenue Office is of the position that the purchaser must have paid market value to be eligible for the stamp duty concessions, meaning that if the buyer has paid less than market value the buyer is not eligible for the first home buyer stamp duty grant or concession.