Purchasing a property from relatives, can I avoid Stamp Duty and other questions?

Hi there, this is my first post. We are considering purchasing the house we are living in which belongs to my partners parents. If we purchase privately is there any way we can avoid paying stamp duty on the property? I was also wondering if it's possible to pay the in-laws as much as possible directly to minimise the loan amount. Or even pay the same amount as a loan direct to them. I was thinking maybe get a loan for say 1/2 the value of the property, enough for the in-laws to be financially stable, then continue paying them the same amount as what a loan would be, with interest. I'd rather pay interest to the in-laws than to a bank. Is this possible or am I just dreaming?

 

Hi Namrog and welcome to the forum

Unfortunately you will still need to pay SD- either market value or sale price, whichever is higher. The best person to speak to about the correct way to do all of this is your accountant and, of course, a good independent broker.
Best of luck

 

No way to avoid stamp duty unless the house passes via a will.

You could enter into a installment contract agreement with them so that you pay them off in installments or you could pay half now and owe them the rest which you could pay in installments.

The trouble will be getting a loan and doing this.

Also watch out for centrelink issues.

 

The in-laws are still working for now. There should be no Centrelink issues for the time being should there?

 

Hi,

as Jacque and Terry have indicated yes you have to pay stamp duty. You will need to obtain a valuation from a registered valuer for stamp duty purposes so that duty can be calculated. And yes you pay on the higher of the amount you are paying to the parents or the valuation.

With regard to your idea of paying off in instalments, if the parents have a mortgage on the property, that will need to be discharged, so you really need to find out how much that is and be at least paying that out and then making extra payments.

You will also need to have transfer documents drawn etc. If you require assistance, please don't hesitate to contact me to discuss and for a quote

Regards

 

Arms Lenght Commercial Trasnactions

Hi

As Vanessa has pointed out you won't be able to avoid paying SD on the transaction. All sales must be completed, especially where they are between related parties such as a company and a director, company and subsidary or parents and children must be completed as an arms length commercial transaction for SD purposes. To do this and prove that you have done so you will be required to have the property valued by an accredited valuer and exchange sale contracts at the time of settlement. Obviously this will mean that you are required to pay SD on the transaction.

 

Hi Matthew,

I must say this is not correct.

Stamp duty would be based on the greater of consideration (if any) or the unencumbered value of a property. In NSW this would be covered by s20 Duties Act.

But this doesn't mean that transfer of property between related parties, or any parties, doesn't need to be at arms length. for example a parent could gift their property to a child or transfer for consideration of $1.

Incidently CGT must also be calculated at market value - s116-30 ITAA 1997.

 

Hi Terry

You have raised some good points but the NSW Duties Act of 1997 defines transfers of property to include any of the following:
- An agreement for sale or transfer
- A declaration of trust
- A surrender of an interest in land in NSW
- A vesting of land by statute
- A foreclosure on a mortgage
- A vesting of dutiable property or as a consequence of a court order.

For the purposes of the Act dutiable property includes land and goodwill.

The Act also states that duty is calculated on the dutiable value of the property which is the higher of:
- The consideration (if any) for the property;
- The current market value of the property.

Generally the market value of the property is established through a certified valuer's valuation. Therefore, any sale of a property for example at a nominal charge of $1, would still attract SD at the properties officially valued price. Just as would a transfer of the property.

 

Hi Matthew,

A lot of information for you to take in. I note you are in Melbourne, and the duties act in Victoria is a bit different to NSW which I think most people are referencing to. I understand that in Victoria you still need to have the property valued to ascertain the value and stamp duty is paid on the higher of what you are paying or the valuation. I would suggest that you contact a Conveyancer in Victoria to discuss your specific situation and get advice from them. Here is a link for the Australian Institute of Conveyancers, Victoria AIC Vic :: Find a Conveyancer
which will give you names of qualified conveyancers that may be in your area.

Good luck with your transaction.

 

Matthew,

I am not sure of your point?

I just wanted to point out that the transfer doesn't have to be at arms length but any stamp duty would be charged as if the transaction was at arms lenght - ie market value (or consideration if higher).

The OSR would insist on a valuation if the consideration was obviously lower than market value or if it is clear family are involved.

 

Hi Terry

Thanks, that is what I was referring to in my original comment, that the stamp duty would be treated as if the transaction has occurred at arms length, as per the Duties Act, forgive my loose use of legal terminology.

 

We agree on that then.

Also something else I considered, there could be tax consequences for the tranferee if the receive the property for $1 consideration and then later rent it out. Best to transfer at market rates I think, especially where loans will be involved.

Also possibly future bankruptcy issues - under market value transactions etc

 

I certainly agree Terry with regard to both points. In fact we saw the teeth of the clawback provisons in the Bankruptcy Act applied many years ago in Sydney with the bankruptcy of a number of barristers for unpaid taxes who had transferred their properties or share in the joint spousal property to their wives and the promptly divorced them as means to protect the marital home as well as a number of cases relating to the payment and/or transfer of assets into SMSFs. This also saw a number of ammendments made to the BA by the Federal Government to in fact make it easier for Bankruptcy Trustees to claw back assets that have been disposed of in this way even easier to recover.

 

When Stamp Duty is payable

Hi Nam

If the property had been in NSW; to 'buy' the property from your in-laws, without the requirement to pay Stamp Duty at the beginning of the transaction, I would have considered setting up up a Lease/Option arrangement. This would have delayed payment of Stamp Duty until you exercise the Option to purchase the property. Of course the Option could have had a term of, e.g. 20 years and, if you elected to exercise the Option just before the Option term expired you would have delayed payment of Stamp Duty by 20 years, under the current rules ;-)

However last year Victoria brought in new rules regarding real estate Options that have a Lease associated with them, i.e. Stamp Duty is payable immediately upon these two documents coming into being.

Regarding the traditional sales process, Victoria's timing for the payment of Stamp Duty is different from NSW. In NSW Stamp duty is payable within 90 of exchange of contracts. In Vic is payable when the tile transfers.

Therefore, if I was in your situation, I would buy the property off your in-laws with a vendor finance Instalment Contract. It is very flexible with regard to how you'd like to setup the purchase arrangement and, importantly, you will not pay Stamp Duty on the transaction until title transfers. Therefore, if you were to get your solicitor/conveyancer to draw up the Instalment Contract for 20 or 30 years, in Vic, the payment of Stamp Duty can be delayed for those periods of time.

By the way, you can setup an Instalment Contract so you can refinance into a traditional loan at any point, without penalty. As I mentioned before, they can be structured to meet the requirements of both agreeing parties, i.e. you and the in-laws.

Let me know if you would like the contact details of a solicitor who specialises in these Contracts.

Cheers, Paul

Paul Dobson - Vendor Financier - Welcome to the Negative 2 Positive
Ph: 0447 973 235 - Welcome to the JV Property Partners
Learning more about Vendor Finance » Vendor Finance Institute