Are your parents planning to gift to you a property?
Did you know that there are certain requirements that must be fulfilled?
Alex recently got married and as a wedding gift, his parents wanted to transfer their property to him.
He attended our office believing all that was required was to sign a few documents and the transfer would be finalised.
Alex didn’t know that stamp duty would need to be paid and that he needed to get a valuation.
The Transfer process
In order to transfer property from the current owner referred to as the ‘transferor’ to the person receiving the property, the ‘transferee’, a Transfer document is required.
The Transfer once executed and lodged with the governing body, known as Land Registry Services (LRS) (formerly known as Land and Property Information (LPI)), will record the transfer of ownership.
Additionally, when lodging the Transfer with the LRS, another important document is required, known as the Certificate of Title.
The Certificate of Title is the official record of ownership of land.
Unsurprisingly, If there is a mortgage on the property, the Certificate of Title is held by the bank. If there is no mortgage, the Certificate of Title is generally held by the owner of the property or their solicitor.
Where there is a mortgage on the property, the bank would need to produce the Certificate of Title to the LRS in order for the Transfer to be lodged.
The bank charges a fee for this process and fees vary from bank to bank. Generally speaking, this fee would be adjusted in the settlement process.
Revenue NSW (formerly known as the Office of State Revenue (OSR)) requires stamp duty to be paid on all documents that are transferred. This will result in the stamping of the document.
Stamp duty is paid on the market value of the property or the agreed purchase price, which ever is higher. Where parties are related, Revenue NSW requires an independent valuation to determine the market value of the property.
Stamp duty is therefore payable on the independent valuation, not the agreed contract price, and is only payable on the share of the property being transferred.
For example, the property your parents are planning to transfer to you is valued at $600,000. If they transfer half of their share, worth $300,000 to you and retain the other half for themselves, the stamp duty payable is calculated on the $300,000.
However, if they transfer the whole of the property to you, the stamp duty payable would be the valuation of the whole property. In this scenario, Alex would therefore need to pay stamp duty on $600,000.00.
Once the transfer document is stamped and the duty is paid, the document can then be lodged with the LRS. If the transfer document is not stamped and the duty is not paid, the transfer of ownership cannot occur. Generally speaking, payment of stamp duty is adjusted in the settlement process, therefore you do not need to worry about making the payment yourself.
It’s not as simple as we think! Whenever you consider transferring property always think of the tax consequences.