leverage or sell

[doey11]

hi
my wife and i are considering a family home purchase of 970k.
current status is family home value 670k in my name, 200k is owed.
investment property value 330k, 100k is owed and in wifes name capital gains as of nov this year if sold. current rent 1000p/m mortgage payments 750pm. so +geared.

do we sell the rented house to finance the bigger home or leverage?
current salaries are 100k and 30k respective.

positives / negatives and all helpfull advsie appreciated.

one more thing is it legal to sell property for less than value to minimise capital gains tax..this scenario would be where there is a possibilty of a house swop with some money involved?

thanks

 

[traveller]

Hi Doey11,

Welcome to the forums...

hi
my wife and i are considering a family home purchase of 970k.
current status is family home value 670k in my name, 200k is owed.
investment property value 330k, 100k is owed and in wifes name capital gains as of nov this year if sold. current rent 1000p/m mortgage payments 750pm. so +geared.

do we sell the rented house to finance the bigger home or leverage?
current salaries are 100k and 30k respective.

Lets summarise:
Equity in own PPOR = 470k
Equity in the IP = 270K
Total Equity = 740K
After selling these (Assuming you want to sell your current PPR as well) you will be left with just 230K of PPR loan.

Whether you sell the IP or not really depends on your long term goals.

However since its in your wife's name who is on 30K and thus not on a very high tax bracket it might make sense to sell it as you will not be paying much of a CG Tax. You can also salary sacrifice to super to reduce her taxable income in that particular year.

However it really depends on your end game, your age and your future goals...

one more thing is it legal to sell property for less than value to minimise capital gains tax..this scenario would be where there is a possibilty of a house swop with some money involved?

thanks

Short answer: No

 

[Pablo]

I personally would try to keep the current properties and leverage to buy the new PPOR.

Here are a few ideas to make it more feasible.

-Go interest only on all loans.

-Recylce debt on ip's through capitalising the interest / expenses to change non deductable debt into deductable.

-Change the ownership of your current PPOR into both names, you won't have to pay capital gains tax / stamp duty as you are currently living there. This will reduce the amount of tax you have to pay on the rent as it will not be solely in the highest income earners name.

-Or look into selling the existing properties into a trust, this will release some of the equity to be used on the new PPOR purchase.

 

[Nommy]

has your wife ever lived in the ip?

 

[doey11]

thanks ....my wife lived in the ip for 13months... as for the end game to have the lifestyle now.
I was for selling both houses to part finance the larger house it seemed a clean option but a seed was planted that leveraging (as it is currently positive geared) the IP may be achievable to achieve the same end. Ofcourse the current home would be sold.

 

[Nommy]

If your wife purchased the property as an owner occupied property initially and lived in it, the property is eligible for capital gains exemption. The 6 year rule, you can rent out the property for up to 6 years and if you sell before the 6 years, nil capital gains tax.

 

[marg4000]

If your wife purchased the property as an owner occupied property initially and lived in it, the property is eligible for capital gains exemption. The 6 year rule, you can rent out the property for up to 6 years and if you sell before the 6 years, nil capital gains tax.

Not if Doey wants to claim PPOR on the existing marital home. Only one PPOR exemption at a time. This means one for co-habitating couples, not one each.
Marg

 

[Nommy]

not my place to advise on that part of it.

 

[doey11]

thanks for the help