With house prices remaining sky-high in 2025, the ‘gift of equity’ is becoming a lifeline for Australians eager to help family get a foot on the property ladder. But how does it actually work, and what should you watch out for when gifting equity to a loved one?
What Is a Gift of Equity?
A gift of equity occurs when a homeowner sells their property to a family member at below market value. The difference between the sale price and the market value is treated as a ‘gift’, which can be used by the buyer as part (or all) of their deposit. This is a popular strategy among parents and grandparents wanting to help younger generations buy their first home without handing over cash.
For example, if a property is worth $900,000 but is sold to a daughter for $800,000, the $100,000 difference is the ‘gift of equity’. This amount counts towards the buyer’s deposit, reducing or even eliminating the need for lenders mortgage insurance (LMI).
How Gifting Equity Works in 2025
Banks and lenders have tightened up their documentation requirements in 2025 amid ongoing affordability debates and regulatory scrutiny. Here’s what’s involved:
- Formal Valuation: Lenders require a professional valuation to establish the property’s true market value.
- Gift Letter: The seller must sign a statutory declaration or gift letter confirming the equity is given freely and without expectation of repayment.
- Deposit Contribution: The gifted equity is counted as the buyer’s deposit, which can help them avoid LMI if the total deposit meets the lender’s threshold (typically 20%).
Many major banks, including CBA and Westpac, have updated their lending policies for 2025 to streamline the process for family equity gifts, but still require thorough documentation. The process can take longer than a standard sale, so buyers and sellers should factor in extra time for paperwork and lender approval.
Tax Implications and Risks
While a gift of equity can be a powerful tool for families, it’s not without pitfalls. Here’s what to watch for in 2025:
- Capital Gains Tax (CGT): If the property is not the seller’s principal place of residence, CGT may apply on the market value, not the sale price. This can catch some families off guard.
- Stamp Duty: The buyer pays stamp duty based on the full market value, not the discounted sale price. In NSW and Victoria, 2025 updates have confirmed no exemptions for family-to-family sales, so budget accordingly.
- Centrelink and Pension Impacts: Gifting significant equity can affect the seller’s eligibility for the Age Pension or other benefits, as Centrelink treats large gifts as deprived assets for five years.
It’s also crucial to clarify the intentions behind the gift in writing. Family disputes over property are on the rise, and a formal agreement can prevent misunderstandings down the track.
Real-World Examples: How Australians Are Using Equity Gifts
With affordability remaining a major hurdle in cities like Sydney and Melbourne, more families are leveraging equity gifts. In 2025, we’re seeing creative approaches:
- Parents selling a former family home to adult children at a discount, enabling them to buy without LMI or a long savings slog.
- Grandparents assisting grandchildren to purchase rural or regional properties, using equity gifts to cover the entire deposit.
- Siblings pooling resources, with one gifting equity to the other in exchange for a share of future capital growth.
These arrangements can unlock property ownership for those otherwise priced out, but always require careful planning and legal advice.
Final Checklist: Is a Gift of Equity Right for Your Family?
- Check current lender requirements and updated bank policies for 2025.
- Obtain a formal valuation and have all gift agreements in writing.
- Consider tax, stamp duty, and Centrelink impacts upfront.
- Seek legal and financial advice to avoid future disputes or surprises.
A gift of equity can be a game changer for families in 2025, but it demands planning, transparency, and a clear understanding of the rules.
