Ask Paul: I invested in property with my sons' inheritance, how can I transfer it to them?


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Dear Paul,

Many years ago, my two sons were gifted $3000 each as part of an inheritance - they were 13 and 14 at the time.

I used this money to buy an investment property in my name with my own home as collateral. I now wish to transfer this property to them.

Ask Paul I bought an investment property with my sons' inheritance, how can I transfer the property to them

There is $88,000 owing on the loan, the house is now positively geared and is now costing me money on my tax. How is the best way to do this? They are now 23 and 24 and are saving to buy their own homes. - Judi

What a great decision you made a decade ago, Judi. This has been a very good period for property and I am sure the investment has done well.

It would be interesting to contrast the returns you have generated for them compared to leaving the money in the bank.

The difference would be huge, reinforcing my view that long-term money should be in long-term growth assets, such as shares or property.

But here you become a victim of your own success. The transfer will, in all likelihood, generate capital gains tax (CGT) for you. Then your sons will pay stamp duty on the transfer to them.

These could be quite significant numbers, so I am going to ask you to pop into your accountant to check these liabilities and also discuss all the facts around the proposed transfer.

With shares, an investment for a youngster is generally made by a parent or grandparent "as trustee for" the minor. This means the "beneficial owner" of the share is the child and it can be transferred CGT free to the child as they become an adult.

It looks like you bought the property in your name, which is fine, and even if there are tax and stamp duty costs, it will still be a great decision for your sons.

However, your accountant may advise you to delay a sale until you are a lower taxpayer to minimise CGT or have other strategies in mind. But my expectation is that the sale will generate a CGT liability for you.

Then, of course, the transfer price to your sons will be the amount that stamp duty is paid on. It may be wise to get a number of valuations, but again, I would like you to discuss this with your tax adviser.

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Paul Clitheroe AM is founder and editorial adviser of Money magazine. He is one of Australia's leading financial voices, responsible for bringing financial insight to Australians through personal finance books, the Money TV show, and this publication, which he established in 1999. Paul is the chair of the Australian Government Financial Literacy Board and is chairman of InvestSMART Financial Services. He is the chair of Financial Literacy at Macquarie University where he is also a Professor with the School of Business and Economics. Ask Paul your money question. Unfortunately Paul cannot respond to questions posted in the comments section. View our disclaimer.