Buying Your Parents’ House: How the Finance Works in NSW

You can buy your parents’ house with an ordinary home loan, and a family sale below market value is common. Some lenders will count the discount towards your deposit as a gift of equity. But NSW duty is charged on the higher of the price and the market value, and the discount can have tax and Age Pension effects for your parents.

How does a family sale work?

Like any other sale, with a few extra steps. There is a contract prepared by a solicitor or conveyancer, an independent valuation, a loan approval and a settlement. The usual NSW cooling-off rules apply to a residential contract unless they are waived, which the guide to the cooling-off period in NSW explains. The difference is the price, and everything that follows from it.

What is a gift of equity?

When your parents sell to you for less than the market value, the difference is a gift of equity. Some lenders accept it as all or part of your deposit, provided the contract shows the price, a valuation shows the market value and your parents sign a gift letter. Other lenders do not accept it at all, and lend on the lower of the price and the valuation, as they would on any purchase.

The gift letter template shows what lenders expect to see, and gifted deposit home loans covers how gifts are assessed.

A worked example

A unit independently valued at $900,000 is sold by the parents to their daughter for $800,000. She is a first home buyer.

Three things stand out. The loan is above 80% of the value, so lenders mortgage insurance applies unless she uses the 5% Deposit Scheme or a guarantor. The duty is worked out on $900,000, not $800,000: at the $800,000 price an eligible first home buyer would have paid no duty at all. And she still needs cash for the duty and costs, because a gift of equity is not cash.

How is stamp duty worked out on a family sale?

Revenue NSW charges transfer duty on the price or the current market value, whichever is higher. When the buyer and seller are related, the property has to be valued by a suitably qualified person. A discount does not reduce the duty, and the first home buyer thresholds are measured on the same dutiable value. The stamp duty calculator and the article on NSW stamp duty for first home buyers show the figures.

Can you use first home buyer schemes when buying from family?

The usual eligibility rules still apply, including the price and value limits. For the 5% Deposit Scheme, both the price and the lender’s valuation must be within the cap, which is $1,500,000 in Sydney. The concessions also carry move-in and residence requirements. Confirm eligibility with Revenue NSW and the lender before you sign; first home buyer schemes in NSW sets out each scheme.

What tax could your parents pay?

If the house has been your parents’ main residence, they can generally claim the main residence exemption from capital gains tax. If it is an investment property, the ATO’s market value substitution rule applies to a sale between people who are not dealing at arm’s length: the capital gain is worked out on the market value, not the discounted price. Your parents should speak with their accountant before agreeing a price.

Can the sale affect your parents’ Age Pension?

Yes. Selling below market value counts as a gift. Services Australia lets a person or couple gift up to $10,000 in a financial year and no more than $30,000 over five financial years without effect. Anything above that is treated as an asset they still own for five years from the gift. The sale proceeds also count under the assets and income tests. A financial adviser or Services Australia can work through the effect before the price is set.

What about brothers and sisters?

A discount to one child is a gift that the others do not receive. Families handle that in different ways: an equal gift to each child, an adjustment in the parents’ wills or a written family agreement. Whatever you decide, put it in writing and have each side get independent legal advice. It protects the relationships as much as the money.

What if your parents want to keep living there?

Then it is not your home yet, and that changes the loan. A property you do not live in is usually assessed as an investment, with different rates and policy. First home buyer concessions and the 5% Deposit Scheme require you to live in the property, so a rent-back arrangement can rule them out. Settle the living arrangements before you choose the loan.

Questions people ask

Can my parents give me the house for nothing?

Yes, but duty is still charged on the market value, the capital gains and pension rules still apply, and you will need cash for the duty and costs.

Do I need a conveyancer if it is a family sale?

Yes. A family sale still needs a proper contract, the transfer and a settlement, and the lender will require it. Separate legal advice for each side is wise.

Will the bank value the house at the family price?

No. The lender orders its own valuation. If the lender accepts a gift of equity, it uses that valuation to work out your deposit.

Charles Touma finds lenders that accept a gift of equity, checks the valuation early and works out the cash you need for duty and costs before anyone signs. A free 30-minute call covers the price, the deposit and the loan. General information only, not legal, tax, financial or credit advice; have a solicitor and an accountant review a family sale. Sources: Revenue NSW, transfer duty and related party valuations; ATO, transferring property to family or friends; Services Australia, gifting rules; Housing Australia, 5% Deposit Scheme property price caps, checked 17 October 2026. Duty figures use the Revenue NSW 2026-27 rates and first home buyer calculator.

General information only, not credit, legal or tax advice. Your situation is assessed properly before any recommendation. Government scheme details change; figures are current at the time of writing.