First-Home Buyers, stamp duty relief and parental loans that become gifts

From 1 August 2020, first-home buyers in NSW will save stamp duty of up to $31,355 for purchases of new homes up to $800,000 (up from $650K), with the saving phasing out at $1 million and for vacant land up to $400,000 (up from $350K), phasing out at $500,000. You can read the announcement here.

Some parents might be tempted to lend their children funds to get them started with their new home, and to take advantage of the stamp duty concession.

However, parental help given with the best intentions can generate uncertainty and big legal costs, as it did in the unfortunate case of Dunphy v Russell in the NSW Supreme Court in 2018. 

The daughter bought a unit in her name – so she would get a first home owners grant of $15,000. The father contributed $200,000 as a one third share of a total $600,000 costs. When the property was sold for $1,137,000, their relationship had collapsed, (the father only found about the sale by accident). The father demanded one third of the sale proceeds. The daughter refused. They went to court.

There was no written agreement. Each gave very different versions of what happened. The father said the money was an investment, his daughter said it was a gift. The father said he presented a partnership agreement and later proposed a loan, neither of which were signed. 

The judge listened to the different versions and said while there was no binding contract (the terms were too uncertain) the daughter held the legal title to the property in trust as a one third beneficial interest for her father. The daughter was ordered to pay one third of the sale proceeds, $379,000, to her father. 

The lesson: get legal advice, ensure what is agreed is certain and that everyone knows what will happen if the initial goodwill evaporates, and record the agreement in writing.

To record your family loan agreement, contact Peter McNamara.

To read the full decision of Dunphy v Russell [2018] NSWSC 721 click here.