What are the legal implications of selling to family members?


Question: My wife and I are currently in negotiations with her parents about purchasing a property of theirs. We’ve agreed on a sale price of $177,500. It’s a rural property on approximately 165 acres and the house block will be subdivided to a two-and-a-half acre block. We’ve agreed to pay for the subdivision costs, which will come off the price of the house, bringing the sale price down to around $170,000. We have approximately $20,000 for a deposit and so only have to obtain finance for the remaining $150,000.

I’m wondering what the best way to go about this is. My wife is a real estate agent, so she has a fairly good understanding of what’s involved, but we’re not sure if we should transfer the title or complete a normal contract. Is there any way to avoid excessive fees and charges, stamp duty, capital gains, etc?

The property is located in South Australia and evaluations from other real estate agents price it at around $250,000–260,000.

Answer: In our practice, we’re seeing an increasing number of property transactions between family members, including situations such as yours where property is subdivided and a subdivided portion of the land is transferred to a child.

This is no doubt a by-product of the lower affordability of the housing market, whereby parents are transferring property to their children to give them a start in property ownership.

Where property is transferred between family members, it’s theoretically possible and lawful to transfer property using a ‘transfer’ form and without going to the expense of having a full contract for sale prepared, with appropriate disclosure documents such as title searches, council zoning certificates, etc. However, when dealing with such a valuable commodity, it’s advisable that your arrangements are properly documented and that the usual Contract for Sale (containing any special terms agreed to by the parties) and transfer form are used.

There have been many cases where family members have fallen out and ended up suing each other when intra-family property deals go wrong. Having arrangements properly documented is a good way to minimise the scope for arguments and differences of opinion.

It’s also preferable that the parties are advised by separate and independent solicitors before they commit to or sign any legal agreements.

You should also be aware that most transfers of land will be subject to the payment of ad valorem stamp duty. The amount of duty payable will be determined by the value of the land being transferred. In NSW, the Office of State Revenue will require the parties to obtain a market valuation of the property for stamp duty purposes from a registered valuer, and stamp duty will be paid on the value of the property being transferred as assessed by the valuer. There are some recognised examples where the transfer of property to family members is exempt, for example transfers to children by parents who are separating.

Finally, it’s important that your parents or anyone in their position seek tax advice from a tax accountant as to the capital gains tax (CGT) consequences of transferring all or part of a property to a family member. For CGT purposes, the consideration paid for the transfer is ignored and the market value of the property is used to determine the value for CGT payable.

Answer supplied by George Vlahakis, www.clickconveyancing.com.au

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  • Hudson Holland says on 13/07/2012 04:49:39 PM

    Question.If a spouse independently purchases a property without the husbands knowledge, holds it for several years,and then transfers it to the daughter without the husbands knowledge,can he make any claim.? He contributed indirectly to funding it.

  • Vanessa says on 17/08/2013 02:26:31 PM

    Just need to know if father transferred property to me for $350,000 (consideration) would I have to pay stamp duty on this amount or agents valuation of $550,000. (property will be as investment)

    Also if I was to sell the property a few years down the track would Capital Gains tax start to be calculated from the $350,000 or the $550,000.

    We don't know if its better that he sells the property, gives me the proceeds and I buy another investment property, PLEASE HELP!!!

  • Jo Kinnane says on 15/04/2014 09:00:13 PM

    My husbad bought a house for our daughter as she would not get a mortgage - she lives on a disability pension. We would like to give her and her husband the house. No money to be paid to us. What do we ave to pay for stamp duty etc?

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