The Challenges & Costs of Exiting a Co-Ownership Property
Co-owning a property can be a practical and financially beneficial arrangement, but when circumstances change, sometimes one party needs to jump ship. Whether due to financial strain, health issues, relocation, relationship breakdown, or differing property goals, it’s not uncommon for one co-owner to buy out the other. While this process may seem straightforward, there are several financial and legal considerations to consider.
Key financial considerations.
1. Stamp duty.
When one co-owner buys out the other, the transaction is generally subject to stamp duty, which applies to the portion of the property being transferred. This can add a significant cost to the transaction, though exemptions may be available in certain cases, such as settlements reached through the Family Court for married or de facto couples.
2. Capital Gains Tax (CGT).
If the property has appreciated in value since its purchase, the exiting co-owner may be liable for capital gains tax on their share of the increase. The exact tax liability depends on factors such as the length of ownership, whether the property was a primary residence or an investment, and any applicable exemptions or concessions.
3. Refinancing & increased loan repayments.
The remaining owner must secure financing to purchase the exiting co-owner’s share. This may involve refinancing an existing mortgage or obtaining a new loan, often resulting in increased repayments. Lenders will reassess the borrower's financial position, and loan approval is not guaranteed, particularly if the property value has changed or if the borrower’s financial situation has shifted.
The process of buying out a Co-owner.
1. Agreeing on a valuation.
To determine a fair buyout price, both parties should obtain multiple property appraisals from real estate agents or independent valuation reports. This ensures that neither party is disadvantaged and that an equitable agreement is reached.
2. Engaging a settlement agent.
A settlement agent facilitates the legal transfer of ownership by preparing the necessary documentation and lodging it. The process typically takes between one to six weeks, depending on whether a bank is involved in the mortgage discharge or new loan setup.
3. Exploring alternative funding options.
If the buyer is unable to secure traditional financing, alternative options such as vendor finance agreements or private lending may be considered. However, these options come with additional risks and should be carefully evaluated.
Additional considerations.
Buying out a co-owner can be beneficial in allowing one party to maintain ownership and control of the property. However, it means assuming full financial responsibility for the mortgage, maintenance, rates, and other holding costs. Additionally, the buyer remains liable for the entire property, even if ownership is split proportionally.
It is crucial to assess whether the timing is right, both in terms of personal financial stability and the property market cycle. Consulting with a mortgage broker can help navigate financing complexities, while an experienced settlement agent can ensure a smooth transaction.
Do it right with Ascent Accountants.
Exiting a co-ownership arrangement requires careful planning, financial assessment, and professional guidance. By understanding the potential costs and implications, co-owners can make informed decisions that align with their financial goals and personal circumstances.
We can run you through the tax implications and connect you to trusted brokers, property exerts, and legal advisers within our network. If you’re going to exit a co-ownership, it’s important to do it right — contact us!
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