Tax Tip 357: Life Tenancy under a will and Land Tax in NSW

Tax Tip 357: Life Tenancy under a will and Land Tax in NSW


Where someone holds a ‘life tenancy’, granted under a will, over land owned by someone else the life tenant will be treated as the owner of the land for land tax purposes in NSW. The life tenant will be assessed and not the legal owner.


Example

Grandpa Simpson dies and he leaves his main residence to his son Homer. But he also grants a life tenancy to his girlfriend Doris. The life tenancy disappears at the death of Doris and Homer becomes the sole person with an interest in the property.

Doris is treated as if she is the owner while she is alive. Doris is assessed for land tax on the property, even though the title to the property might be in Homer’s name. If Doris rents the property out and she has no other property the land tax could be nil if the value of the land is less than the threshold.

After the death of Doris Homer is then assessed.

If Homer dies first, Doris will still be entitled to remain in the property until her death and then it will revert to the person Homer left it to under his will.



Legislation

S20 LTM Act

LAND TAX MANAGEMENT ACT 1956 - SECT 20 Holder of limited estate taken to be owner

 

@Terry_w - Now a few curly ones....

• Does a life tenancy need to be evidenced in writing to be provable?
• Is there a standard form/template document?
• Does the LT need to be a registered interest in the property ie on title? For example the LT agreement is sitting in a drawer at the beneficiary's house?
• What's the situation where the LT is granted prior to death ie not via the will but the owner subsequently passes?

 

This is an interesting one. So, for example you could will the property to a grandchild, but give a life tenancy to the parents of the child.

 

Yes I would think it does. It might be possible for a life interest to arise under the laws of equity, but I am not sure

no

no it doesn't need to be recorded on title. It is a type of trust really.

granting a life interest during life is possible but it is a CGT event and might even trigger duty. A right to reside is another option, but even these would trigger CGT i think they are looking at amending the laws as granny flat interests are getting caught.

The life interest can also be measured on someone else's life. I give Scott the right to reside until donald trust dies. It might also be tied to something other than a life. I give Scott the right to reside until donald trump returns to twitter

 

yes

In the old days the man used to own the home and then leave it to his son on death with the wife getting a life interest - usually as long as she never remarried.

 

A lady & her friend that I know received a half interest each in a house on the proviso that one of them lived in the house until a cherished pet passed.

So a conditional LT based on a 3rd event.

 

I bet they took good care of the pet. Who checked up that it was still alive? The remainderman would have been watching closely.

 

What happens if Doris wants to move out, needs to move into an aged care faciilty etc.

Does that terminate the interest?

 

It would depend on the terms of the life interest deed or will. A life interest generally means the property belongs to you until death so she could rent it and keep the rent generally. Otherwise it would be a right to reside.