Query Re: Parents Wanting to Transfer Property to Me

JokerCandy on 02/10/2020 - 20:21

Hi everyone!

For background, I’m a young professional (sole trader operating for ~2 years) and my parents want to retire but gift/sell their OO property to me and keep their IP to live in. They have this weird situation where both houses are under the one mortgage and according to the bank, it’s not possible to just separate one house out. My options are apparently to:

  • Just use my savings to pay off the parents’ loan (~$80k) and transfer the title for one home to me
  • Get my own home loan (~$500k borrowing capacity, CBA OO P&I 2.85%), ‘purchase’ the home from my parents, keeping the excess funds in the offset, or buy another property/lump in an ETF

Some misc considerations are that:

  • I’d be a first home buyer, but both properties are values in excess of any first buyer grants/benefits (i.e. no stamp duty waiver for me)
  • The $80k mortgage is at 4+% but it’s not easy for parents to refinance due to low/non-existent income + I believe the relatively low loan amount is what’s accounting for the high variable IR
  • We have no plans to utilise the HomeBuilder grant for anything

So the question is whether anyone has been through this process of transferring property to their children and whether you have any advice or had any surprise considerations that we should know. We’d really appreciate any help regarding our next steps!

Cheers :)

Financial

Comments

  • garetz on 02/10/2020 - 20:49
    +3

    Since its your parents primary property, them selling it gives them 100% tax free on capital gains, which means it would be much better for you as the child if they sold it on the open market, then gifted you the money after its sold and the loan is paid off instead.

    If you buy it from them, not only do you have to pay stamp duty, as you said the value is in excess of the grant allowance but you will also lose that cgt exemption they have if you need to sell it on in the next 12 months or so.

    it seems what your parents are trying to do is convoluted and not necessary.

    • JokerCandy on 02/10/2020 - 21:02
      +1

      Thank you for the advice! Unfortunately, the house has some sentimental value so whilst my parents are alive, I/we probably won't look to sell. I don't mind the location either and am happy to live in it despite seemingly losing out from not just taking the cash and buying elsewhere?

      • Quantumcat on 02/10/2020 - 22:16
        +6

        If you're not planning to sell while they're alive then what is the point in transferring ownership to you? Why don't you live in it, and pay parents the interest on the loan as rent. And you'll get the property in your inheritance, and can do what you like with it then.

  • Orico on 02/10/2020 - 20:55

    Sell the property, parents give you cash!

  • Seraphin7 on 02/10/2020 - 21:01
    +1

    What's the parents' loan situation in total? If their income is effectively zero, then guess what their borrowing capacity will be …

    This is where the whole show could come a cropper. It sounds like you have a solution, but haven't defined the problem. It sounds like the whole situation will need consideration to get the best outcome. Don't forget the rules relevant to gifting should your parents be looking for a pension or government-supported aged care.

  • Flowerbomb on 02/10/2020 - 22:36
    +1

    Will both the IP and house be under your name if the transfer goes through?

    • JokerCandy on 02/10/2020 - 22:53

      Only the house, parents want to keep the IP for now

      • Flowerbomb on 02/10/2020 - 23:33
        +1

        Read your other comment, so yes they do need to get rid of one house in order to get the pension, as the second house will count towards the asset test (which I think is approx $450k limit for a couple on the pension) .

        My vote is to sell the house and share the proceeds with your sister. I know there’s sentimental value, but it’s such a mess and added cost to transfer the title. Take photos of the house with the people inside. It’s not the house and its contents that made the memories, but the relationships formed in the house.

        • Flowerbomb on 02/10/2020 - 23:34

          Oh and this gifting to their children must be done before they reach a certain age in their 50s, if not their pension will be affected. Check the centre link website for the exact age.

          • arkie0 on 03/10/2020 - 01:23

            @Flowerbomb: It's not age related, gifted assets count towards asset test for 5 years.

            • JokerCandy on 03/10/2020 - 08:38

              @arkie0: Cheers all, that's been really informative and insightful. Yes many memories with a great family!

  • TheMindsetTraveller on 02/10/2020 - 23:35
    +2

    Also be mindful about gifting rules IF your parents are thinking of applying, for example, an aged pension in the near future.

    • lunchbox99 on 03/10/2020 - 08:47

      This is the whole reason they are thinking of doing it.

  • AustriaBargain on 03/10/2020 - 04:06

    If people start working from home more often now, then won't land value further away from cities go up because there now needs to be room enough to set up a kid-free office room for each parent? How people value small and large houses could change soon. If it's too small to work from home in, or there's no hope of fiber NBN until decades away because you live on a muddy hill, then the relative value to other houses could drop 15 years from now yeah?

  • abobo on 03/10/2020 - 04:20
    +2

    Parent's situation - You need to seek professional advice,
    The property to "sell" on the open market or to the Children should be the current PP to avoid CGT and thereafter to move into the current IP and make it their new PP. However when they later sell this property or if the children inherit it, there is a CGT component tied to the period when it was their IP
    Another issue is in selling the current PP to the Children, the proceeds/value of the sale is your parent's assets and subject to the Gifting rule and it will affect their eligibility & amount of pension.

    You have not state whether you are living in the same house as your parent or if after the house is sold/gifted to you it becomes your IP or your PP , that is you will live in it.
    In the current status quo situation, the value of the IP and rental income obviously affects your parent's entitlement to the pension which I presume is why they are deliberating on gifting 1 of the house to you.

    The value of the property less the outstanding loan regardless of whether they sell on the market or to you, it will always be treated as your parent's assets and subject to the gifting rule and affects their eligibility & amount of pension.

    IF after gifting/selling their PP to you and it becomes your IP, you can negative gear the property. I believe you have already researched the issues relating to first home ownership.

    Go seek professional advice - your parent should have seek professional advice 5 years before retirement on the gifting rules.

  • vikvance on 03/10/2020 - 07:41

    As others have mentioned, if your parents transfer the house to you, then it will be considered a "gift" and Centrelink's gifting rules will apply to potentially reduce their pension for 5 years after the "gift".

    https://www.firstlinks.com.au/check-centrelink-rules-gifting

  • arkie0 on 03/10/2020 - 10:19

    Are you going to live in the original house or rent it out? Might need to know the values of the property as it will help calculate the best/lowest assets they can hold to give you a more definitive answer.

  • Love a bargain on 03/10/2020 - 13:01

    Why not sell the IP, settle the mortgage, and give you and/or your sister any excess money that's gonna push their total asset value over the threshold? (Still gotta watch the gifting rule of course.) You and/or your sister can then use that money to buy something that is under the first home owner threshold and somewhere where you wanna live in.

    Another thing to consider is whether either of the properties are pre-CGT (and, if so, selling such asset to you will means that your family as a whole loss out on the CGT exemption between now and your parents' death).

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