Buying out IP partner

Greetings all Somersoft Forumites,

My first post - I've been lurking for a few months, but hope to contribute usefully with what little I've learned from here on.

I have a situation that I would like to ask your input on, if anyone call offer guidance.

My wife and I are partners in an IP with my sister, and my sister wants us to buy out here share this year. My sister wants to buy a PPOR, and we are quite happy to buy out her share of the IP. I would like to buy my sister's share in my name to maximise our -ve gearing.

My wife and I are joints tenants (25%/25% ownership) and together we are tenants in common with my sister (50%). We have one shared loan over the property.

I have two questions.

My first question regards title / stamp duty: Can my sister's share of title simply be transferred to me, or does the entire title have to be transferred? In other words, will I have to pay stamp duty on half the house value or its whole value?

My second question is, how will the bank (CBA) likely treat this? Will it want the entire existing loan paid out and a new one created, or will it permit me to take over my sister's obligation on the current loan? We have an IO loan fixed at 7.15% to May 2012.

While partnering up to buy an IP beyond our individual means 3 years ago made sense, the mechanics of buying out a partner are doing my senses in!

Cheers.
 
My first question regards title / stamp duty: Can my sister's share of title simply be transferred to me, or does the entire title have to be transferred? In other words, will I have to pay stamp duty on half the house value or its whole value?

No you cant merely transfer the Title to you and your wife. Stamp duty will be payable on the Transfer at the current rate however will only payable on the share which is being transferred. She of course may also have CGT to worry about

My second question is, how will the bank (CBA) likely treat this? Will it want the entire existing loan paid out and a new one created, or will it permit me to take over my sister's obligation on the current loan? We have an IO loan fixed at 7.15% to May 2012.

If the loan is a fixed rate and your sister wishes to be removed then it will be a matter of re-writing the loan again under 2 names which may may incur Break costs.
 
As you are tenants in common with your sister, her part of the property stands alone. You buy her out, paying stamp duty on half of the property value.

So the new title will be:
you and your wife as joint tenants 50%, tenants in common with you 50%.

As you have a shared loan, it will be up to the bank as to whether they will release your sister from her obligations and transfer them to you, or whether they will insist on a new loan with the resultant break fees. An appointment with them will tell you your options.

Another point for your sister to consider is the timing of the sale. If time is not an urgent issue, it may pay her to carefully consider whether she wants the CGT to be payable in this financial year or the next. It may be beneficial to her to delay the sale contract until 1st July.
Marg

(as always, check with experts before making decisions.)
 
Thanks for those replies.

We plan to transact in about 6 months and just hope that any break costs won't be too high. Getting control over the IP and not being liable for my sister's share of the current loan are the advantages that will offset any break costs, I figure. The IP is actually the other semi attached to our PPOR, so 100% control for future redevelopment purposes (they're old and more than ready for it) is a major consideration.
 
What was the written exit plan agreement when you set up the joint venture?
If nothing was written down, its hard to nut out a strategy now. For instance who pays the stamp duty and or loan break costs? Should it be the one initiating the sale or simply the purchasor? If the party left isnt able to buy out the other partner, can they sell to a third party?

JV's sound great to lots of people, but without a written agreement which includes an exit plan they are a recipe for disaster, especially between members of the same family!
 
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