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What to be aware of when buying property from relatives in regard to stamp duty

You have negotiated the purchase or transfer of a property to you from your parents, siblings or other relatives and you want to know how much stamp duty you have to pay, if any.

These types of transactions are called 'associated person transactions'.

Who are my Relatives?

The Duties Act 2000 (Vic) (the Act) defines 'associated persons' for the purposes of stamp duty. This definition includes relatives, but also companies, trusts, partnerships and more.

In this blog we will be looking at relatives in particular. If your proposed transaction is outside the definition of 'relatives' and you require advice as to whether it is classed as an 'associated person' transaction or not, you should obtain legal advice before entering into a contract or agreement.

According to the Act, the following persons are classed as 'relatives':
(a) Children, grandchildren and any other direct lineal descendants
(b) Parents, grandparents and any other direct lineal ancestors
(c) Siblings
(d) The partner of the buyer or the partner of any of the people referred to in (a) – (c) above
(e) Nieces and nephews, including your partner's nieces and nephews
(f) Uncles and aunts, including your partner's uncles and aunts.

The General Rule

The general rule is that you have to pay stamp duty on the market value of the property, but you must provide additional evidence as compared to an 'arm’s length' transaction, where you are buying from a stranger.

Associated party transactions and can be broken down into three overall categories.

1. The property is being gifted to me

If you receive the property as a gift you must pay full stamp duty on the market value of the property.

As evidence of market value, you must provide a letter of appraisal from a licenced real estate agent or registered property valuer, and stamp duty will be calculated on the value shown in that letter or valuation.

Apart from a couple of exceptions, which we will look at a bit later, you do not qualify for any stamp duty concessions or exemptions.

If the property you are getting is a home you may also no longer be eligible for any first home buyer concessions on a future purchase.

2. You are buying the property at a reduced price

This is treated exactly the same as if the property is gifted to you as set out under 1 above.

3. You are buying the property at full market value

This is treated the same as if you were buying the property from an unrelated third party, but you must provide the following additional evidence:

(a) A letter of appraisal from a licenced real estate agent or registered property valuer as evidence of the market value; and
(b) Proof of payment of the full purchase price (including any deposit) from your money. Usually, this is in the form of bank account statements and /or loan account statements showing the amounts withdrawn. These need to add up to the full purchase price/market value if you wish to claim any stamp duty concessions or exemptions.

If you are paying full market value for the property AND you meet the evidence requirements, you may be eligible to stamp duty concessions or exemptions.

The Exceptions

You may be eligible for an exemption from stamp duty under the following circumstances, even if you are not paying full market value for the property.

1. Transfer between spouses/domestic partners

A transfer of the principal place of residence only between spouses or domestic partners is exempt from stamp duty.

The only eligibility requirements are that:
(a) The only parties to the transaction are the spouses or domestic partners.
(b) The property is the principal place of residence of the couple.

If the transaction meets these requirements you do not need to provide evidence of the market value of the property.

If the property is not your principal place of residence, the general rule applies you will need to pay stamp duty as set out above.

2. Family Farm Transfer

If the property you are buying or receiving as a gift is a farming property, you may be eligible for an exemption from stamp duty if:

(a) The land is 'primary production land' for tax purposes – maintaining animals or growing crops for personal benefit only is not primary production for land tax exemption purposes. There must be a sale of the products resulting from the primary production activity; and
(b) The land continues to be used as 'primary production land' for tax purposes after settlement

Always obtain legal advice in relation to stamp duty on your proposed purchase and any concessions or exemptions you may be eligible for before you sign a contract or agreement to buy land from a relative.