‘Are there any tax pitfalls if I buy each of my four children a house?’

Q: I’m considering buying a house for each of my four children, which I would leave to them as part of my estate. One of the houses would be in Australia, the others in New Zealand, and I expect to spend about $400,000 on each, with no mortgages required.

Each property would be owned by me until my death and my children would live in them rent-free but would take responsibility for all maintenance and utilities costs (I’d insure the houses myself but they would service the contents cover).

If any of my children failed to upkeep their home, they’d have to forfeit the property and the money from its sale would go back into my estate, to be distributed after my death. Are there any tax liabilities for me or any of my children individually or for my estate if I follow this plan?

A: Firstly, my firm does not offer taxation advice and you should consult an accountant on this particular matter for more detailed advice. However, my initial and general thoughts are as follows:

There are no death duties either in Australia or New Zealand and so the occurrence of your death will not actually trigger any tax consequences.

The Australian property will have a capital gains tax (CGT) base cost because if purchased in your name it will be treated as an investment property i.e. it is not your main residence. That CGT base cost and history will be passed on to the Australian beneficiary on your death and any subsequent sale by that beneficiary may attract CGT. If the property is deemed to be the beneficiary’s main residence, there will be some scope for CGT exemption. CGT is a complex matter, hence the need for specialist advice.

There is no CGT in New Zealand.

Due to the differing values of each property, including any increases or decreases between purchase and the date of death and the differing tax laws, the four beneficiaries will not receive gifts of equal value. If you think this is an issue and unfair, you may wish to include an equalisation clause in the will duly equalising the benefits between each of them using other assets in the estate.

The forfeiture situation would need careful thought and monitoring and if forfeiture was to occur because your child did not meet your expectations on a property’s upkeep, the will would need to be revised immediately in order to prevent the gift taking effect on death.