You’ve found the property you want – but in whose name should it be? Photo: Yuri Arcurs People Images.
Sifting through the fiscal demands of buying a property, one question arises – whose name should the purchase be under to yield the best financial outcome?
There’s no “one size fits all” answer to this question, but the right advice could save you significant capital.
Velocity Conveyancing director Peter Romano says it all depends on a range of variables in an individual’s circumstances, and each option has a unique risk profile.
“What’s more, the best option for you today may not be good for you moving forward,” he says.
“The classic example is a client who runs a business and is susceptible to lawsuits. It makes absolute sense to put a property in their partner’s name so that asset is protected, but that becomes a disaster if that couple gets divorced. Though the Family Court can rule as they deem fit, it’s not a good starting point. It can also create issues when people pass away.
“The trick is to regard your specific circumstances through a long-term lens, capturing the possibilities of today and down the track.”
From the outset, it’s important to understand the difference between “joint tenants” and “tenants in common”.
Joint tenants own the entire property together, and if one person passes, the other automatically owns the whole thing. Tenants in common each own a specific share of the property at a ratio of their choosing; their wills determine what happens to their shares.
For young people starting in the property market, particularly where one member is at home looking after the family and the other is working full time, being joint tenants makes sense – from an equity and fairness perspective. However if the property is an investment, it may be better to have the property in the non-working party’s name for tax planning purposes.
There may also be financial reasons to have a party on title, such as satisfying loan serviceability to secure financing. This needs careful consideration of the share split between tenants in common to facilitate the best outcome today and when it’s time to refinance and remove that party.
In the current market where adult children rely more on parental input, it’s an increasingly common scenario.
“Many parents are having to take out loans with children, and the bank wants to see them on the title,” Peter explains. “It doesn’t have to be a 50/50 split – allocating even one per cent usually satisfies the bank.”
Again, the rule of thumb is to think long term because stamp duty applies when removing mum and dad from the title.
“If you’re using your parents’ income as ‘serviceability’ of a loan, with the intention of squaring things up when you’re in a stronger financial position, remember the stamp duty cost of transferring one per cent is going to be virtually nothing compared to 50 per cent,” he says.
“And you’ll need to decide in the context of how it impacts other benefits you may or may not be entitled to at the time, such as first home buyers grants.”
Peter Romano of Velocity Conveyancing urges a well-informed and tailored approach. Photo: Thomas Lucraft.
If couples bring unequal contributions to the table, such as a downpayment from their parents or the proceeds from the sale of a property from a previous relationship, having a will becomes important.
“You might be happy to go with no will and let your estate be divided as per the legislation or as the court sees fit. But if for example you have kids from a previous marriage and want the wealth you built in your previous relationship to remain with those children, and any new children to receive whatever wealth you amass going forward, you’ll need distinct shares,” Peter says.
“Even if you have a binding financial agreement, having more children after you sign that agreement, affects how it is applied. It may even become unenforceable, as the court will always prioritise the best interests of all the children.
“It’s a humungous can of worms.”
Whatever the circumstances, there may be unintended consequences people may not consider.
“I once had an elderly lady tell me she was buying an investment property and wanted to put half of it in her friend’s name, an elderly gentleman. That’s a very kind and generous gesture, but from a lawyer’s perspective it raises questions,” he says.
“Putting aside concerns of fraud or undue influence, if you want to give someone a gift, one idea would be to leave it to them in your will because if you put them on the title today, it’s gone. That means if they pass before you, their share goes to whomever they want to pass it to. If the relationship sours, they could try and force you to sell the property.
“If it’s on the title, it’s definitive. If you want to transfer it back, stamp duty may apply. Your will, on the other hand, can be changed at any time at minimal expense.”
Velocity Conveyancing provides neither family law nor tax advice, but in collaboration with other professionals the company has helped hundreds of people manage big and complex asset pools and there’s always a common thread.
“Always ensure you seek trusted professional advice.”
The above article is not intended to provide legal advice but to highlight the many complex and variable situations that may arise. It is important that before acting you seek proper, legal, financial and/or estate planning advice to meet your unique needs.
For more information, contact Velocity Conveyancing.
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