Tax Tip 21: Tax Advantages of Buying property in 1 name only

Other exemption is when you are taking over deceased estate - for e.g. you can transfer it without inclusion of stamp duty. (VIC) but only within the 1 year time limit. did one before couple years ago.

 

Transfer from the deceased to the LPR and from LPR to a beneficiary is generally exempt from duty in all states.

 

what's LPR?

 

Legal Personal Representative - executor or administrator of the estate.

 

I have thought of another reason why you should buy property in 1 name only rather than joint.

Say one of the spouses took time off work - maternity leave, paternity leave, sick, holiday etc. The other spouse could lend the non working spouse money to pay the loans. Interest would probably be deductible - which may not help if the non worker has a low income, but it can assist with greater losses which can be carried forward. This would not be possible where the ownership was joint.

And yet another - the non working spouse's offset account may be the best place to dump large sums of cash as there would be greater tax savings - which can turn can help make the borrowing to pay interest worthwhile. Where both spouses own the property any tax savings would be shared in accordance with ownership.

 

Example

Mr X and Mrs Y.
They live in a PPOR fully paid off.
Mr X has a $500,000 investment property with $400,000 loan, rents for $400 per week
Mrs Y has a $500,000 investment property with a $400,000 loan. rents for $400 per week
They also own another $500,000 IP with a $400,000 loan that rents for $400 per week - but this one is owned as Joint Tenants.

Mr X earns $200,000 per year
Mrs Y earns $0 per year excluding rent.

One parent dies and leaves them $400,000 cash. Where would they put it?

If they put it in the jointly owned property Mr X's income would jump and he would pay more tax. If they put it in Mr X's property his income would jump even more. He would lose half in tax.

but if they put it in Y's property her income would jump - yet she would probably pay no tax at all.

 

Why wouldn't she? Isn't she increasing her income for 400k that year?

 

If her income is only from these properties she would not have a $400k income, but $400k cash in the offset on her IP. This would wipe out the majority of her deductions. So her income would be $400 per week or $20k per year which is under the threshold with the low income rebated.

She would also have all associated expenses to claim, including depreciation so her taxable income may be around $10k pa.

 

Another benefit that I just thought of - something @Marg4000 said in another post.

With joint loans the offset accounts will be joint as well and there is only one guarantee of $250,000 per lender with the Financial Claims Scheme (http://www.apra.gov.au/CrossIndustry/FCS/Pages/default.aspx`)

Whereas with single ownership each spouse could get a separate offset account and between them have access to 2 separate guarantees totalling $500,000 with one lender.

 

Hi Terry,

The benefits of 1 name only seem numerous in what you lay out. However, if there is a non-working spouse, how would that spouse practically be able to secure a mortgage in order to put the house under their name only?

From what I understand, lenders will not accept a joint mortgage, but only one name on the title.

Or am I missing a further step/strategy? Thanks.

 

WIth the majority of lenders out there they will accept a mortgage from one spouse and the loan in both names. I.e. one on title and two on the loan.

There are some that won't allow this easily.

 

My understanding is a bank is permitted to take offset funds and apply them to a loan in certain circumstances. Financial collapse of the lender being one. Then there is nothing to insure or claim under the financial insurance scheme as the loan is now reduced or repaid. While offset credit balances are insured its possible that actions by the lender could impact the claim. This came up also with a large share broker that failed. ANZ was lender for margins and took all shares and sold them down and applied client money etc. This affects what some clients wanted to claim as their loss. Court found for the lender. I recall reading a legal article (3-5 yr ago!!) which compared this to offsets and identified the risk as one when you hold savings in a offset.

I had a client years back who had a colonial mutual loan and offset. CBA bought them and then after a year or two they advised the account was no longer being offered. They automatically applied all offsets to loan and created a redraw availability. Legal nightmare that tainted deductibility and couldnt be fixed - Ombudsman ruled for lender.

 

I learned something today, did not know this. Thanks.

To anyone who has looked at this, what lenders have you come across who offer this? Might form part of my next planned strategy.

 

All the major and minor banks allow title in one name and loan in 2 names for spouses - defacto and married.

AMP are a bit resistant on this, but do allow it sometimes.
Loans.com.au will allow it but only with legal and financial advice obtained by the non-owner.

I haven't had any other lender kick up a fuss.

 

Hi Terry,
Thanks for sharing the info.

Husband and I are currently refinancing an IP with Virgin Money. The IP title and current loan are under my name. The new lender Virgin wanted to change thr loan under both our names.

Question is whether changing the loan from one name to both names will impact on our serviceability for the next purchase as we are looking to buy another IP under both names this year?

Thanks!

 

Yes it will because your husband is now liable for the full debt of your property.

 

Whuch may also reduce mattimonial assets. Hence lender may reduce future lending on servicing. What did your broker suggest?

 

@Terry_w - When you say buying in 1 name, do you mean 1 name on the mortgage or the title ?
If the couple have borrowed combinedly but the title has only one's name - what's the status of this property ? Bought in one name or two ?

 

I am talking about ownership here - title. This usually is what determines the tax issues.

 

Hi, new to the forums here and came across this topic from google, heaps of great info and looking forward to be apart of more topics.

I currently have two IP’s, and my partner and I are looking to buy a PPOR, I would like to put it in her name to keep myself freed up to continue investing as she has no interest in it. Being a PPOR, would there be tax or legal implications to having it in her name but then myself transferring money to her to assist in repayments?