Convert PPOR to IP - husband buys wife out

[Aaron_C]

How would husband purchasing wife's 50% of property be seen as asset protection?

If you argue it correctly, yes. Since he is self employed you don't want the family home in his name. Perfectly understandable.

 

[Terryw]

Hi Aaron,



How would husband purchasing wife's 50% of property be seen as asset protection?

If wife were to go bankrupt then the property would be relatively safe if it was transferred for market value. This would depend on the reason for the transfer, the financial situation of the wife at the time of transfer and how you set up your transactions in the future.

 

[Terryw]

If he can borrow $500k for the wife and refinance the $90k into the new loan, he will have a $590k loan - structured as IO with offset account.

Husband is not borrowing for the wife but borrowing to purchase the property of the wife.

f the current loan is $90k then only $45 k of this would be the wife's share and $45k the husband's (assuming 50/50 ownership).

So he would need a loan of $545k to buy out wife's share and to 'refinance' his $45k loan.

I think I have posted links above and Jason's private ruling regarding the ATO's position on this.

 

[ozgal]

Hi Terry,

Thank you so much for simplifying things.

You can have 2 main residences for a period of 6 months. s 118-140 ITAA 97
http://www.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/s118.140.html

But this probably won't apply if you time things right anyway. If you move into the new property at settlement then you won't be renting out the old property beforehand.

Settlement is the date then, when we'd nominate new property as PPOR.

If your income is not enough for a loan then your husband could guarantee the loan and still stay off title.

This is probably a good way to proceed:
1. Get a preapproval for husband to buy wife's share. Borrow 100% for this if possible, ie costs too. Get IO loan with 100% offset.
2. Do this while continuing to live in house
3. Get lawyer going and loan full approval.
4. transfer title. Get your cash paid to your bank account.
5. You transfer your cash into your husband's offset account.
6. Keep living there while you look for the new property. No tax issues as it is not rented
7. work out your finances and get a loan pre-approval if needed
8. Find new property
9. Buy new property
10. Put up existing home for rent while waiting to settle on new property
11. settle and move in.

I dont' see any tax issues - as long as you don't pay down the husband's loan and redraw it later etc.

7. work out your finances and get a loan pre-approval if needed
8. Find new property
9. Buy new property
10. Put up existing home for rent while waiting to settle on new property
11. settle and move in.

If we are able to get quick settlement when country property is found, funds that wife transferred to husband's offset account against Prahran property, could be transfered back to wife's bank account. These funds together with savings of around $260k could be used to purchase country property. If loan was required it would be around $200k (should new property cost $900 + 50k Stamp Duty less $760k available funds). Wife would have high equity in property so hopefully loan would be no issue. Loan would be taken out with 100% offset. Not sure if it would be P&I/100% offset or IO/100% offset. Future savings over next two years would be paid into this offset account, effectively paying loan off but still providing access to funds if required as buffer or for future IP purchases. Once bitten twice shy now about having a property fully paid off.

Alternatively, husband could still purchase 50% share of current PPOR, wife still deposits these funds into husband's 100% offset account. Remain in property and continue to save while looking for suitable country property. Take out smaller loan using extra savings to fund purchase of country property, or find cheaper country property if wishing to have no loan at all.

Thanks so much, Terry!