Blog

July 28, 2017

You, Me or Us

Tim Cece | Director, Search Mortgages

Whose name should be on the title of your new property? Traditionally when purchasing a home with your partner, it would be registered in both people’s names… But is this the best structure for every occasion?

There are a number of options to consider when purchasing a property with other people, which have various legal, tax and future borrowing implications.  Let’s explore these:

Joint Tenancy
This is the most common ownership structure when a family home is purchased. Joint Tenants have equal ownership of the whole property.  Ownership of the property passes to the other joint tenant in the event of a death to an owner. The ownership cannot be simply transferred to another person in the event of a separation of a party’s interests (divorce).

Tenancy in Common
Tenancy in Common is the most flexible ownership structure and works well when groups of people want to purchase a property together. Firstly it allows ownership to have unequal shares in the property.  Therefore enabling more people to get involved in the purchase, which in-turn makes it cheaper for everyone. And ownership shares can be transferred to someone else or into an estate if an owner dies.

Tenants in Common often are responsible for organising and repaying their own individual loans (take care – some lenders have restrictions).  Therefore when everything goes well this can be a great arrangement.

However, each owner is “jointly and severally” responsible for each other’s loan.  Put simply, if one owner falls into financial difficulty the other owners are responsible for the repayments. Therefore a lender could force the sale of the property to recoup its money.

The capacity of each individual’s future borrowings is also affected in this arrangement.  For example your lender will calculate the entire debt on the property as your liability not just the percentage of your ownership.

Tenancy in common can be of benefit in regards to tax, particularly when borrowing capacities can be increased for borrowers using two applicants and splitting the % of ownership to the lower (or higher) income earner.

Title’s in a single entity
Buying an investment property in only one person’s name could have tax and other advantages. Capital gains tax (CGT) is a common tax paid when selling investment properties for profit. When the property is in the name of the spouse who has a lower income, they will incur less tax than if the income from the capital gain was shared with the partner.

There are a number of ways of setting up ownership of a new purchased property.  I hope the information above is a good guide to help you start thinking about your ownership structure. Laws governing tax and property ownership in Australia are complex, so seek proper legal and financial advice before entering into any arrangement.