Transferring Property Between Family Members in Victoria: What You Need to Know

Transferring property between family members may appear straightforward, particularly when no money is changing hands. However, changing the registered ownership of property can have significant duty, tax, lending and estate-planning consequences.

A family transfer should be considered carefully before any documents are signed. Being related does not automatically make the transfer exempt from land transfer duty.

What is a family property transfer?

A family property transfer occurs when an existing owner transfers all or part of their interest in a property to a relative.

This may include:

• adding a spouse or domestic partner to the title;

• transferring property from parents to an adult child;

• transferring a share of property between siblings;

• removing an existing co-owner; or

• gifting a property without receiving payment.

Even if the transfer is described as a gift, it still changes the legal ownership recorded on the title.

Is stamp duty payable on a family transfer?

Land transfer duty, commonly called stamp duty, will generally apply unless the transaction qualifies for a specific exemption.

For a transfer between related parties, duty is ordinarily calculated using the greater of:

• the amount paid for the interest being transferred; or

• the market value of that interest.

This means that transferring property for $1, or gifting it without payment, does not necessarily avoid duty. A transfer from a parent to an adult child, for example, will generally attract duty based on the market value of the interest transferred.

Is a valuation required?

The State Revenue Office will generally require evidence of market value for a transfer between related parties.

An independent valuation may therefore need to be obtained. The value used should reflect the property’s market value at the time of the transfer rather than its council valuation or the amount originally paid for it.

The valuation and supporting documents are provided as part of the duty assessment process.

Are transfers between spouses exempt?

Certain transfers of residential property between spouses or domestic partners may qualify for a duty exemption.

The exemption has specific requirements. Among other things, the transfer must generally be for no consideration, the property must be used as a principal place of residence for the required period and no person other than the spouses or partners can receive an interest.

It should not be assumed that every transfer between spouses will qualify. The ownership structure, use of the property, parties involved and any payment or financial arrangement must be considered before the exemption is claimed.

What happens following a relationship breakdown?

Separate duty exemptions may apply when property is transferred because of the breakdown of a marriage or domestic relationship.

These transactions usually need to be supported by appropriate documents, such as a court order, financial agreement or other qualifying agreement. Family-law and tax advice should be obtained before the transfer documents are prepared.

Can property be transferred to children without duty?

There is no general duty exemption simply because property is being transferred from a parent to a child.

Duty will usually be assessed on the market value of the property or share being transferred, even when the child does not pay anything for it.

Before gifting property to a child, the parties should also consider the effect on their estate planning, taxation position, eligibility for government benefits and exposure to the child’s financial or relationship circumstances.

What if there is a mortgage over the property?

If the property is mortgaged the lender will usually need to consent to the change in ownership.

The existing loan may need to be discharged, refinanced or replaced. A person being added to the title may also need to be approved as a borrower by the lender.

The transfer cannot usually be completed until the lender’s requirements have been satisfied so it is important to contact the lender or broker early.

Could capital gains tax apply?

A transfer or gift of property to a family member may have capital gains tax consequences for the person transferring it.

For tax purposes the Australian Taxation Office may treat the property as having been transferred at market value even when no payment is received or it is transferred for less than its value.

The outcome will depend on matters including how the property has been used, when it was acquired and whether any exemption or rollover applies. Independent accounting or taxation advice should be obtained before proceeding.

How will the new owners hold the property?

Where more than one person will be registered on the title they must decide whether to hold the property as joint proprietors or tenants in common.

This decision affects ownership shares and what happens to an owner’s interest if they die. It should be considered together with the parties’ Wills, financial contributions and future intentions.

What else should be considered before transferring property?

Before proceeding, the parties should consider:

• the market value of the property;

• whether duty or an exemption applies;

• possible capital gains tax consequences;

• any existing mortgage or refinancing requirements;

• the manner in which the new owners will hold the property;

• land tax and principal place of residence implications;

• Wills and broader estate-planning arrangements; and

• whether each party should obtain independent legal, financial or taxation advice.

A transfer can affect more than the names recorded on the title. It is important that everyone understands the consequences before committing to the transaction.

How I can assist

I can prepare and lodge the conveyancing documents required to transfer the property, assist with the duty assessment process and coordinate settlement with any lender involved.

If you are considering transferring property to or from a family member, please contact me before making any arrangements so that the proposed transfer can be reviewed and the necessary requirements identified.

This information is general in nature and does not constitute legal, financial or taxation advice. Property transfer, duty and taxation requirements may change, and advice should be obtained for your individual circumstances before proceeding with a transfer.