Strategy: Buying Investment Properties in 1 name only

Yes

Complex

 

Great thread, thanks @Terry_w . Since CGT is split between the owners depending on their ownership %'s (50:50 TIC), if the owners were on similar pay rates, would the above have any impact? Would the above apply more where one partner has a lower income (eg p/t, not working etc)?

 

If each owners income was the same then GENERALLY the tax outcome would be the same if owned 50/50 or one property each.

Where it could be different is for situations such as:
a) carried forward losses held by one person
b) where one has the ability to increase deductions for other assets and the other doesn't - such as prepaying interest.

There are also loan issues to consider - one may be able to borrow again on own but the other cannot for example.

 

Similar question re: CGT... Hubby bought our intended PPR in his name only (for many reasons) and it was rented out for 18 months before we moved in (negatively geared etc)... we are told that he will have a CGT liability for this period when we do sell. My question is if I now join him on title as joint tenant, and we sell in say 5 years time... will the CGT liability for that 18 month period be shared between us 50/50?

 

no

Change of ownership now will be a CGT event. He will pay CGT on the 50% transferred.

 

ohhhhh that would be very bad!! So if I understand correctly, if the house has increased in the last 24 months by $500k and 18 of those months it was rented and I become joint owner in the 24th month then he pays CGT on 3/4 of 50% of the capital gain (because 6 months of that it was our PPR) BUT I pay no stamp duty (because spouses). THEN when we sell, do we pay the remaining 50% CGT equally between us or is that liability still stuck on his side of the ledger as well?

 

Think of him having 2 interests in the land.
He sells interest A now and pays tax on it.
You buy interest A now and when you sell it you will pay tax on it unless exempt.
He still has interest B from the beginning so when he sells tha he will pay tax on that.

Stamp duty may or may not apply depending on the state and how the transfer is done.

 

so basically his first tranche of CGT would be his tax rate on .75 ($250K/2) ?

 

I don't know without digging into it. Seek personal tax advice.

 

Oh I see.. thanks... makes sense... I just hoped maybe the 'joint tenants' aspect made things different but it seems the same from a tax perspective (but not a duty perspective) whether we're TIC or JT's... shame... but I did think my fab plan had no legs

 

As Terry says but a little further explanation

If he sells or transfers 50% to you now then the CGT up to now on 50% (see below) would be taxable AND in 5 years time the final CGT on his 50% would be determined and also you would have a different CGT gain on your 50%.

What state ? Does a duty concession apply ? eg in NSW if you reside in a property owned by one of you a transfer to joint tenancy or 50/50 TIC can be done and there is no transfer duty. Sometimes refinance is needed for the existing loan (as property now has two owners) and Terry has done some of these before. Bank agreement is needed and often not a problem.

It may be a strategy BUT it will come at a CGT cost NOW. As a rule of thumb think of what the profit would be today based on its market value and think what todays "profit may be"...Then think how long you have owned the place.
Take 25% of the profit and then apportion that $xxx based on time into two portions
1. The first 18mths (taxable)
2. The remaining period up to today

Assume a tax rate of say 45% x that taxable amount and then consider if its affordable.

 

For CGT joint tenants is treated as tenants in common in equal shares.

Also if you will transfer 50% becareful how it is done. It may be best to borrow to acquire the 50% at full market value rather than receive it as a gift.

 

Wow! So many things to think about! You guys are great... basically this wouldn't be an issue at all if we weren't looking at a huge cap gain... basic facts are this... we bought for $1.85Mill in July 2015 in his name only. Moved in as PPR March this year. Lowest likely val at that date is $2.3Mill. We intended to live here for 10yrs so thought to take the 18months of CGT on the chin BUT Developer is now offering us $4Mill payable in December 2019 (conditional on DA etc of course).... so that makes the CGT quite huge as it's now the 18 month portion of a 4 year uplift from $1.85 to 4 Mill... worth worrying about right!

 

Hmmm... but as his wife wouldn't I just take a love and affection transfer for 'nil' value? Or does that mean my cost base for CGT purposes would be zero??? Scary!!

 

No and No.

 

Hi Terry, thanks for enlightening us with your wisdom.
I wonder, if I am to buy with a child,who is still a Uni student (with the main purpose of long term succession) then still above rules apply ?
What is the best way doing it ? A discretionary trust with 90% mine or simply put both names on the title? What are the pros & cons?

 

Tony - you need specific advice.

If there are 2 or more owners there are various issues - some of which were described above.

 

I thought if you nominated the house as your PPOR and were living in it, even after renting it out, it was CG exempt? or is that only the other way round, living in it and then renting it as long as you don't own another property and living that.

 

Merely nominating is not enough. But if you rent out your main residence it could still be exempt from CGT under certain circumstances.

 

@Terry_w and @Paul@PFI Im a little bit confused about land tax. We have a PPOR and an IP (IP1) in NSW in hubby's name. We are purchasing another IP in NSW (new IP). We are hoping to buy it in joint names. (But I will buy it just in my name if i really need to). I spoke to the OSR today about land tax. They said that the joint new IP will be assessed at $x, and hubby's component will be assessed as 50% of x. So for the purposes of calculating whether hubby hits the land tax threshold, they will add up 50% of x (for the new IP) + the land tax valuation of IP1 (the ppty hubby owns 100%). I would be assessed separately simply on whether 50% of x is below or above the threshold.

Is that correct? It seems different to the previous messages about the issue in buying in joint names...