The Bank of Mum and Dad: The Legal Risks and Rewards of Gifting or Transferring Property to the Next Generation

The bank of Mum and Dad has become a familiar part of life for our generation, with more and more parents helping their children into the property market. What many families do not realise is that the timing and structure of that help can make a real difference. The way you choose to help can be what leaves your children genuinely better off, or, despite the very best of intentions, worse off than before.

That help generally takes one of two forms: transferring a property to a child, or contributing money towards a purchase. In either case, the best outcomes tend to come from a coordinated approach rather than a decision made in isolation. It is important to have advice focused on generational wealth from your lawyer, broker, accountant and financial adviser, to help you understand the options and the factors worth weighing.

There are several considerations that a coordinated team will help you think through. A few of the most significant are set out below.

Stamp duty

Many people are surprised to learn that stamp duty still applies even when a property is gifted for nothing, or transferred for a reduced price. A transfer between a parent and child is a related-party transaction, which means duty is calculated on the higher of the market value or the price actually paid. A transfer at, say, half of the market value will therefore still attract duty assessed on the full market value. There is no genuine way around this, although a first home buyer may be entitled to a reduction. Placing a property into a trust does not automatically avoid it either, because that generally still involves transferring ownership, and factors such as when the property was acquired and how the trust is structured can affect the obligations that arise.

Benefits and tax

What appears to be a helpful gift can leave a child worse off once matters such as capital gains tax, or the effect of a gift on Centrelink benefits, are taken into account. Seeking legal and financial advice early helps you understand these implications and make informed decisions.

Timing

A common question is whether it is better to help now, or to leave the gift as part of an estate. In some circumstances there are fewer liabilities in waiting until after a parent has passed away, rather than gifting during their lifetime. There is no single right answer, and the position is best considered case by case, with advice that helps both the parent and the child understand the full picture, as there can be implications that neither has anticipated.

Gift or loan

One of the most important questions to settle early is whether the help being given is a gift or a loan, as that single decision shapes much of what follows. We have explored it in a separate article:Gift or Loan? Protecting Family Relationships When You Help the Kids Buy.

Going guarantor

Acting as guarantor for a child's loan is another common way parents lend their support, and it carries real risks for the parents themselves. We have looked at what is worth considering in a separate article: Going Guarantor for Your Kids: What Parents Need to Understand.

The thread running through each of these considerations is a simple one. The earlier these conversations happen, the more informed the choices that follow will be. If you are thinking about helping the next generation into property, we would encourage you to seek advice early, before anything is signed, so that the way you help is the way that genuinely leaves your children better off.

We have prepared this article to share general information. For personal advice, book a consultation with our team.