Strategy: Buying in Joint Names

Strategy: Buying in Joint Names

In another thread here I outlined the potential benefits of buying each property in single names only. There is also a case for buying properties in joint names. The benefits are on the legal side – estate planning and on the retirement planning side.


Legal Case – Estate Planning

With jointly owned properties the legal ownership can be structured in 2 ways:

a) Tenants in common, or

b) Joint Tenants

The benefit of holding a property as joint tenants is that on the death of one owner the surviving owners shares automatically increases. This is automatic and bypasses the will.


Thus where a husband and wife, for example, own a property together as joint tenants on the death of one of them the other becomes the sole owner. The advantage here is threefold:

a) Wills can be changed with this not being effected

b) Wills can be challenged with the property being unaffected (note that there are exceptions to this rule)

c) There is little chance that one owner could leave their share to another (some exceptions)


Retirement Planning/Tax Planning

When a couple is selling down properties on retirements because of the potential large capital gains it can be beneficial for these capital gains to be shared across 2 people.


Example

George and Elaine own investment 4 properties each with each of them having a $200,000 capital gain. If they sell one in year 1, say one owned by George then George will have a capital gain of $200,000. Less the 50% discount this becomes $100,000. Assuming George has no other income on retirement then he will have a taxable income of $100,000 and will pay tax of $26,632


Instead if they held 8 properties as joint tenants or tenants in common in equal shares then each of them would have a $100,000 capital gain or $50,000 after the 50% discount. Tax on $50,000 is lower at just $8547. For both of them then it would be just 2 x $8547 which equals $17,094


Not much of a saving but it is still $9,358.


Where the gains are larger the differences between the two will be more limited as a percentage but still a relatively high amount.


For example

Say the gain was $500,000.

This would be $250,000 after the 50% discount. Tax on this would be $90732

Tax on $125,000 is $36382 each or $72,764 for both. But this still a saving of $17,968



Please note the disadvantages of this strategy as outlined in

Strategy: Buying Investment Properties in 1 name only

https://propertychat.com.au/communi...ng-investment-properties-in-1-name-only.5888/



Perhaps a combination may be beneficial with some properties owned in single names and some in joint names.

 

It helps with serviceability as well, if both are working. Thanks a lot Terry, awesome as always.

 

Keep in mind that even where one name is on title with most lenders both names can be on the loans - for spouses.