Can I gift my property to a family member?
To be considered a legal gift, there must be three things: the giver’s intent to make a gift, the delivery of the gift to the recipient, and the recipient’s acceptance of the gift. Gifting is the act of giving something to someone without expecting anything in return. A loan is the opposite of a gift because the lender expects to get the thing back, whether it’s money, a car, or something else.
Gifting property to a family member can be a complex and emotional decision, with important legal considerations.
In New Zealand, there are no gift duty for gifts made after 1 October 2011. However, there are some other things to consider before you make a gift.
Presumption of Advancement – funds contributed by parents
In New Zealand, when parents (or someone in loco parentis) give money to their children, the presumption of advancement applies. This means that the contribution will be considered as a gift in the eyes of the law, unless there is contradictory evidence.
The presumption of advancement is based on the assumption that parents intend to help their children. It is not applicable to other relationships, such as stepparent-stepchild, parent-in-law, sibling, nephew, niece, or grandparent-grandchild (unless the grandparent is in loco parentis).
Impact of Gifts on Residential Care Subsidy
If you give money or assets to a family member, the value of those gifts may be included in the asset test for the Residential Care Subsidy. This means that if you need residential care later in life, you may have to pay more for it if you have given away assets.
Another key issue to be aware of is the application of the “bright-line test”. This rule taxes residential land sales when a property is sold within the bright-line period and no other land sale rules are already taxing the property. The relevant bright-line period depends on when the property was acquired; acquisitions between 28 March 2018 and 26 March 2021 are subject to a 5-year bright-line period, and acquisitions from 27 March 2021 are subject to a 10-year bright-line (unless the property is a ‘new build’, in which case a 5-year period applies).
Is the property a Main Home?
When a house is gifted to a child by a parent, for tax purposes, the parent can be considered as having sold the house for its market value at the time of transfer. Where the transfer falls within the specified bright-line period, and the house is not their Main Home, the parent (or trust) may be liable for a significant income tax bill, even though they did not receive any cash in exchange for the house.
Before You Make a Gift
The actual intention of the transferor is an important consideration in determining the legal consequences of a transfer of money or property.
Here are some examples of how the actual intention of the transferor can be determined:
- To make an outright gift: If a person transfers money or property to another person with the express intention of making a gift, there is no doubt that the transfer is a gift.
- To transfer the funds in satisfaction of other debt: If a person transfers money or property to another person in order to satisfy a debt that the transferee owes to the transferor, the transfer is not a gift but is has the same effect as a gift.
- That the contribution maybe a repayable loan: If a person transfers money or property to another person with the intention that the transferee will repay the money, the transfer is not a gift.
- To own a share in the property reflective of the contribution: If a person transfers money or property to another person with the intention of owning a share in the property that is proportional to the amount of money or property that they contributed, the transfer is not a gift.
Once a gift has been given, it cannot be taken back. This is because ownership of the gift has passed to the recipient. The courts can only set aside a gift in very specific circumstances, such as if the gift was given under duress, fraud, or undue influence, or if the giver was not mentally competent at the time of the gift.
If you are considering making a transfer of money or property, it is important to understand the law and to consult with a property lawyer to ensure that your intentions are clear and that your transfer is legally effective.