Disclaimer:
The information on this website is for general guidance only and does not constitute financial or investment advice. Always do your own research and seek personalised advice from a qualified financial adviser or mortgage adviser before making financial decisions. All investments carry risk and past performance is not indicative of future results.
Key Takeaways
- Co-ownership can help buyers pool deposits, income and purchase costs, but lenders assess the full borrowing arrangement and liabilities.
- A written co-ownership or property sharing agreement can record ownership shares, costs, decisions, exits and sale arrangements.
- Plan ahead for expenses, renovations, and buy-out scenarios.
- Bright-line outcomes can depend on sale date, main-home use, ownership period and other property tax rules.
- Get your own legal, tax and financial advice before committing.
Co-ownership can be attractive for first-home buyers, but it is a legal, lending and tax arrangement as well as a property decision. Bright-line tax treatment can also be easy to misunderstand because the rules, timeframes and exclusions have changed over time.
A written property sharing agreement ("PSA") or co-ownership agreement can make a group purchase clearer by recording what each owner has agreed before problems arise.
What is Co-ownership?
Co-owning property with family or friends does not always mean every purchasing party will live at the property. Sometimes one party may be helping another get on the property ladder while wanting their ownership share, rental arrangements, contributions or future sale proceeds recorded clearly.
Now the Bright-line rules do complicate matters, especially when the property may not be one party's main residence or when considering the consequences of selling that property sooner than originally planned.
The Benefits of Property Sharing Agreements
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With a well-drafted PSA in place, ownership shares, costs, responsibilities, decision-making and exit arrangements can be clearly set out from the start.
A PSA Will Address:
- Outgoings and expenses
- Renovations and maintenance
- Buy-out options
- Selling shares or refinancing
- Occupation rights
- Apportionment of equity on sale of the property
- Other important considerations for multi-party ownership
Why Consider Co-ownership?
Co-ownership can let buyers pool deposits, income and purchase costs. When lending is involved, lenders will assess the full borrowing arrangement, including each borrower's income, liabilities, credit position and responsibility for the mortgage.
For some buyers, especially single buyers or buyers in higher-cost areas, co-ownership may be worth exploring as one possible pathway, provided the legal, lending, tax and relationship risks are understood.
Real Success Stories:
Some co-owners plan from the start how long they expect to own together, whether everyone will live in the property, and how a future sale or buy-out could work. Those outcomes are not guaranteed, so the agreement should cover what happens if plans, finances or relationships change.
Understanding the Bright-line Rules
The Bright-line property rules can be confusing because of multiple changes to the exceptions and time frames since the rules were introduced.
Under the current bright-line settings, if you sell residential property on or after 1 July 2024, IRD generally tests whether the bright-line end date is within 2 years of the bright-line start date. Main-home and other exclusions can apply, and other tax rules may still matter depending on intention, subdivision, development, and use.
Even where the bright-line test does not apply, IRD says other property sale rules can still matter, including intention to sell, patterns of buying and selling, and property dealing, development or building activity.
Bright-line Exclusions Can Apply For:
- A main home, if the use and area criteria are met
- Some inherited property or deceased-estate situations
- Business premises or farmland, if the criteria are met
Important Considerations
Alongside the potential benefits of co-ownership, there are real legal, lending, tax and relationship risks. Discuss your plans with independent legal, tax and financial advisers before committing.
Learn More: Buying Property With Others: Things To Be Aware Of
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Frequently Asked Questions
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