When it comes to owning property there are many things you need to think about whether you are buying or selling. However, if you are thinking about changing ownership of the land title, do you know all the rules about transferring property?
As you may already realise, buying and selling property is a costly experience which means it is important to ensure the title of the property belongs to the right person from the start. However, this might not always be possible and you might want to transfer ownership of the property at a later date.
Why you should transfer a title?
Transferring property can occur for a number of reasons. These reasons include:
- Parents who want to pass their property to their children in the form of a gift
- A divorce or breakdown in a partnership could require one party to transfer their share to the other in a property settlement
- An owner of a joint-ownership property might have passed away
- Transfer a title to a company or trust for tax purposes
- Minimise business risk by transferring property to their spouse
As property is considered a long-term investment, it is likely that many people will change property ownership of their property at some point in their life. If you are in a relationship, then your partner does not need to go on the title.
What types of property ownership are there?
Firstly, there are many different types of property ownership you need to be aware of if looking to buy a property. The five main types of property ownership include:
- Outright ownership – There is one owner of the property and you are 100% responsible for this property.
- Joint ownership – This is where you own a property equally with someone else, usually between couples or friends.
- Trust ownership – A property is owned and managed by a trust or another figure. There are numerous trust types available, of which family trusts are the most common.
- Company ownership – You can also own a property through a company. This is good news for anyone who has a tax rate of over 30% as it reduces the company’s taxable income if it is an investment property.
- Owning a property through your SMSF – You can also now hold a property through your Self Managed Super Fund, which provides many benefits.
How much does changing property ownership cost?
Changing property ownership doesn’t come cheap though. Transferring property ownership is an expensive process and there are various factors you need to be aware of.
- Capital gains tax (CGT): If you sell or transfer ownership of a property then you might be liable for CGT. Selling your primary place of residence that you live in will not incur CGT; however if it is an investment property, then you will have to pay CGT. Normally, you are looking at approximately 25% of the capital gain. However, there are some exemptions available.
- Stamp duty: When changing property ownership you will need your Transfer of Land document stamped by the State Revenue Office. This differs per state and in Victoria stamp duty can be waived. Other cases where stamp duty is not payable include a relationship breakdown where a person is taken off the title (NSW). Stamp duty is calculated by the revenue office based on the land valuation and is normally between 3 – 5.5 per cent.
- Other fees: When selling or transferring the title of your property, the mortgage conditions change. One of the most common fees you need to watch out for are break fees, and you should try to avoid having a break fee when initially looking for a mortgage.
If you are using a lawyer or conveyancer then you also need to factor in legal fees. It is a good idea to use a lawyer or conveyancer as they can check that all legal documents are completed correctly and helps you avoid costly mistakes, especially if you are transferring the property to a trust or company which can involve a lengthy and complicated process.
Valuation fees should also be considered as many revenue offices will require a sworn valuation of the current market value of the property. Many valuations will need to be less than six months old to be approved.
Even though transferring property ownership can be costly, you should remember that if you are looking to hold on to the property for the long-term, then changing ownership could work in your favour, especially if you want to take advantage of tax benefits.
For more information about transferring property ownership, refer to your local Office of State Revenue. You can also call us on 1300 123 463 to speak directly with one of our Property Consultants. If you prefer, you can also send your enquiry online using our form.
Published on 1st of January 2021 by Michelle Leftwich