Attwood Marshall Lawyers’ Property & Commercial Law Senior Associate Mieke Elzer and Wills and Estates Senior Associate Larisa Kapur explore the legal and estate planning risks that families need to consider before selling their investment property to family members.
Many parents want to help their children enter the property market, particularly as rising property prices make home ownership increasingly difficult for younger Australians.
One strategy is selling an investment property to a child at a discounted price. While this approach can seem a simple and generous way to support the next generation, it can also trigger a range of legal, tax and estate planning consequences that families may not anticipate.
From a property law perspective, transferring real estate between related parties is not always treated the same way as an ordinary market transaction. Issues such as stamp duty, market value assessments and financing arrangements can arise, and these can affect whether the transaction achieves the outcome the family intends.
There are also important estate planning considerations to think about. Providing a property to one child at a discounted price can have implications for how an estate is structured, how assets are distributed between beneficiaries, and whether future disputes could arise between family members.
Before entering any family property arrangement, it is worth understanding the legal and practical consequences so that the decision supports both your financial goals and your long-term estate planning intentions. In this article, we explore whether selling an investment property to your children at a discount is really a good idea.
Property law considerations
When parents consider selling an investment property to a child at a discounted price, the transaction is treated much the same as any other property transfer. In some cases, additional rules apply where the parties are related.
Capital Gains Tax and the ‘Market Value Substitution Rule’
Where the property being transferred is an investment property, one of the most important considerations is Capital Gains Tax (CGT).
The Australian Taxation Office explains that where property is transferred to family members for less than market value, the “market value substitution rule” may apply, meaning the transaction is treated as occurring at market value for CGT purposes. This rule arises under Section 116-30 of the Income Tax Assessment Act 1997.
In practical terms, this can mean that a parent may still be assessed for CGT based on the full market value of the property, rather than the reduced price actually paid.
For example, if a property worth $1 million is sold to a child for $700,000, the parent may still be assessed for CGT as though the property had been sold for $1 million.
This can significantly affect the financial outcome of the transaction and is an important issue to obtain accounting or taxation advice on before proceeding.
Stamp duty
Another important consideration is transfer duty (commonly referred to as stamp duty).
In many cases, state revenue authorities assess duty on the higher of the purchase price or the market value of the property. Where the transaction is between related parties, the authorities will often require evidence of the property’s market value, such as an independent valuation. In Queensland, a real estate agent can provide an appraisal provided it cites three comparative sales in the area.
This means that even if a parent agrees to sell a property to their child at a discounted price, the child will still be required to pay stamp duty based on the full market value of the property.
Financing and lending considerations
Where a property is purchased at a discounted price, lenders will usually assess the transaction based on the market value of the property. In some cases, the difference between the purchase price and the market value may be treated as a gift of equity, but lenders typically require documentation confirming the nature of the arrangement.
If parents intend to provide vendor finance or remain financially involved in the transaction, additional legal documentation may be required to clearly record the terms of the arrangement.
The importance of proper documentation
Even though the parties involved are family members, the transaction should still be properly documented and conducted as a formal property transfer.
This generally involves:
- a written contract for sale,
- appropriate disclosure documentation,
- settlement through the usual conveyancing process, and
- registration of the transfer with the relevant land registry.
Proper documentation helps ensure the transfer is legally valid and protects the interests of everyone involved.
Looking beyond the transaction
Another risk that is sometimes overlooked is asset exposure once the property is transferred. Once ownership passes to the child, the property becomes part of that child’s personal asset pool. This means the property may be exposed if the child later experiences financial difficulty, a relationship breakdown, bankruptcy, or legal claims from creditors.
For these reasons, property transfers within families should be considered not just as a conveyancing transaction, but as part of a broader financial and estate planning decision.
The estate planning perspective
In recent years, the idea of “dying with zero” has gained increasing attention in financial and estate planning discussions. Popularised by the book Die With Zero by Bill Perkins, the concept encourages people to use their wealth during their lifetime rather than preserving it solely to pass on after death. For many parents, this philosophy resonates strongly as they would prefer to see their children benefit from financial support while they are alive, particularly when it can help them purchase a home or establish financial stability earlier in life.
Selling an investment property to a child at a discounted price can sometimes be viewed through this lens. Parents may feel that providing assistance now, when their children need it most, is more meaningful than leaving an inheritance later. However, from an estate planning perspective, arrangements like this require careful thought to ensure they do not create unintended consequences.
The aged care question
Another issue is retirement security. Selling an investment property at a significant discount may reduce the funds available to support parents later in life.
One of the most important considerations is future aged care needs.
The reality is that no one knows how long they will live or what their health and care needs may look like in later life. If retirement savings have already been drawn down, and an investment property is sold at a substantial discount rather than full market value, there may be less capital available to fund future care.
If superannuation or other investments do not perform as expected, this could leave retirees with fewer financial resources than anticipated. In some circumstances, parents may even find themselves becoming financially reliant on the very children they were trying to assist.
Australia’s aged care system is complex and can be costly. Accommodation deposits, ongoing care fees and additional services can add up quickly, and many families are surprised by the level of financial commitment required when the time comes. Retaining sufficient financial resources can therefore be an important part of ensuring choice and flexibility in later-life care arrangements.
Family equity and the risk of disputes
Another key consideration is fairness between children and the potential for disputes.
While parents may intend to help one child during their lifetime, significant benefits — such as selling a property at below market value — can sometimes create tension between siblings after a parent has passed away. Disputes may arise where other beneficiaries feel that the lifetime assistance was not properly reflected in the final distribution of the estate.
Where a property is transferred to one child at a discounted price, parents should consider how that benefit will be balanced across the broader estate. This may involve updating their Will to account for the earlier assistance or formally documenting the arrangement as an advancement.
It is also important to understand that substantial lifetime gifts may come under legal scrutiny after death. In New South Wales, “notional estate” provisions allow the court to consider certain assets transferred within three years before death when determining a family provision claim, meaning those assets may effectively be brought back into account if the estate does not otherwise provide adequate provision.
Other ways to help children enter the property market
In many cases, there are alternative structures that may achieve a similar outcome while reducing some of the legal, tax and estate planning risks discussed above. For example:
- Gifting funds: One option is for parents to sell the property at full market value and then provide financial assistance separately, such as gifting funds to help the child purchase a property. This approach allows the property transaction to occur on ordinary commercial terms and can make it easier to document the financial assistance clearly for estate planning purposes.
- Loan or vendor finance: Parents may choose to assist through a loan or vendor finance arrangement. For example, the property may be sold at market value, but parents may lend part of the purchase price or provide vendor finance. Proper documentation can clarify repayment expectations and whether the loan is intended to be repaid or treated as an advance on inheritance
- Granny flat agreements: Another option sometimes considered is a granny flat agreement. Under this arrangement, a parent may contribute funds in exchange for the right to live in a property owned by their child for the remainder of their life. These arrangements can work well in the right circumstances but should be clearly documented, particularly in relation to accommodation rights, what happens if circumstances change, and how the arrangement interacts with the parent’s broader estate plan.
Because each family’s circumstances are different, it is important to consider the available options carefully and obtain appropriate advice. The right structure can help families support the next generation while also protecting retirement security and ensuring fairness between beneficiaries.
Attwood Marshall Lawyers – helping people at every stage of life
Property transfers between family members can intersect with property law, tax law and estate planning considerations, making it important to obtain legal and financial advice before proceeding.
With 80 years’ experience protecting the best interests of property investors, buyers, and sellers, our Property and Commercial Law department understands what is at stake in every transaction.
Meanwhile our Wills and Estates and Aged Care teams take a holistic approach to estate planning, ensuring your plan reflects your family circumstances, your assets, and your wishes – so that generous gestures don’t come at an unintended cost or cause you stress in the future.
To speak with our estate planning team, contact our Wills and Estates Department Manager Donna Tolley on 07 5506 8241, dtolley@attwoodmarshall.com.au or free call 1800 621 071.
For property advice, contact our Property and Commercial Law Department Manager Fleur Wallis on 07 5506 8233 or fwallis@attwoodmarshall.com.au, or call the firm on 1800 621 071.
Update – May 2026
Since this article was published, the Federal Government has announced proposed changes to Capital Gains Tax as part of the 2026–27 Federal Budget. From 1 July 2027, the 50% CGT discount is proposed to be replaced with an inflation-based discount, with a minimum 30% tax on gains. These changes do not alter the broader point that property transferred to family members for less than market value may still be assessed at market value for CGT purposes, but they may affect the amount of CGT payable. Anyone considering a family property transfer should obtain updated tax advice before proceeding.
