Purchasing your parents’ home carries potential benefits for both parties. They might offer it to you at a reduced price compared to the open market, providing you with a chance to step onto the property ladder. However, there are crucial financial, legal, and tax implications that need consideration.
Is It Legal?
Yes, your parents can legally sell you their house below market value.
Selling a property below its market value is perfectly legal, but it is subject to specific regulations and tax implications.
These rules are designed to prevent tax evasion and ensure that all parties understand the transaction’s potential consequences on their financial situation and tax obligations.
Gift of Equity
The difference between the property’s actual market value and the price you pay is considered a “gift of equity.” Significant gifts can have tax implications for both you and your parents.
Here’s where things can get a bit trickier:
- Capital Gains Tax (CGT): While your parents might not incur CGT on the sale of their main residence, any secondary residences or investment properties could trigger CGT liabilities.
- Gift Tax: In Australia, there’s no specific “gift tax.” However, large gifts might need to be reported to the Australian Taxation Office (ATO) and could potentially affect your eligibility for certain government benefits such as pensions.
Also read: Capital Gains Tax on Gifted Property
Financial Implications for Both Parties
For the Sellers (Parents)
Parents must consider how selling their house below market value affects their financial standing, especially if they rely on the sale proceeds for retirement or other needs. They should also consider potential capital gains tax implications, depending on how long they’ve owned the home and its value increase over time.
Also read: Can You Sell a House for $1 in Australia?
For the Buyers (Children)
For children, buying a home below market value can offer significant financial benefits, including potentially reduced mortgage payments. However, they should be aware that the transfer duty will be assessed at the market rate of the property, not at the discounted rate.
Selling a house below market value from parents to children can be a powerful way to transfer wealth and provide financial support. However, it’s essential to approach this transaction with careful planning, clear communication, and professional advice to ensure that it benefits both parties and maintains family harmony.
Buy Your Parent’s House Below Market Value with CJC Law
Thinking about buying your parent’s house below market value?
Let CJC Law guide you through the process safely and legally. Contact us today to learn how we can assist you in securing a family home for less!
