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It can be difficult to say ‘goodbye’ to a home – but when the property is staying within the family, it often makes everyone feel a lot better.
An increasing number of parents in the UK are considering selling their property to one of their children. This can be an excellent way of supporting them financially, cutting costs typically involved in the house-selling process, and making sure the property stays in the family.
But what are the limitations surrounding this?
Can I sell my house to a family member?
Yes, you can sell your house to a family member. There is nothing legally preventing you from doing so – no matter how old or young that family member is.
The only reason it may become difficult to do so is if HMRC determines that you are only doing so to avoid tax. In this case, you should consult expert legal advice to make sure all you are following regulations correctly.
Transferring ownership of your property is also considered a way of avoiding care home fees in later life, because you will be required to pay your own fees in full if you have over £23,250 of assets. However, there are a number of complex rules to be aware of, and local authorities may take the value of your property into account, even if you have transferred ownership, because it could be viewed as deliberate deprivation of assets.
Furthermore, keep in mind that Capital Gains Tax may still be payable in the future if the property is not a child’s principle, primary residence. This means that if you transfer the property to your child and they do not live in it, they could be subject to capital gains tax on selling it if the value of the property has increased since the transfer.
What are the costs of selling my house to my child?
Although you are legally allowed to sell your house to your child, it is not completely free.
Firstly, if the property you are selling was initially bought several years ago, then you may have to pay Capital Gains Tax, due to the increase in value. The cost of this tax will vary significantly, depending on how much the property’s value has increased.
Secondly, you may face a significant cost depending on the amount remaining on your house repayments. This is because the price you sell your house for must be greater than what is owed on the house repayments. If these repayments are not entirely paid off, then the house still technically belongs to your lender, and you will need to check if they will transfer the remaining house repayments debt.
You may have to pay stamp duty if any outstanding house repayments are greater than the current Stamp Duty Land Tax threshold.
The person you gift the property to (e.g. your child) will have to pay income tax if they have a job. Furthermore, depending on the price you sell your property for, keep in mind that this additional income may push the new homeowner into a higher tax bracket, if they are renting it out, and therefore incur an extra cost.
It is common, when selling to a child, that homeowners believe they won’t have to spend money on a conveyancer. However, selling your house is a complicated process – even when it is to a member of your family – and therefore unless you have conveyancing experience, you should spend money on a conveyancer to make sure everything is carried out smoothly.
The benefits of gifting your house to your child
There are several benefits of gifting your house to your child – both financially, and emotionally.
Gifting your house to a child can be an excellent way to help them get onto the property ladder. In a property market where it is increasingly difficult for first-time-buyers to move out in their early twenties, you could give them a head start by selling them a property you already own. This can also help them financially, if you decide to sell the property at below market value.
By selling or gifting your house to your child, you avoid unwanted marketing costs and estate agent fees that people face when selling traditionally. You also avoid the stress and hassle of selling a property in a chain. This means that your transaction will typically be completed quicker than it would on the market – and without the requirement to liaise with other buyers, sellers and conveyancers.
Finally, gifting your house to your child makes sure that the property stays in the family. This is a particularly important consideration if you have a sentimental attachment to your house.
Gifting vs inheritance: what’s the best option?
Regardless of whether you are gifting or leaving as inheritance, your child will be required to pay charges associated with acquiring it. However, the process of gifting is arguably easier.
When inheriting property, you must pay inheritance tax. You will also be required to legally review the assets of the deceased and their determining inheritors. This is called probate, and can be a lengthy and complex process.
Depending on the value of the property, you may have to pay inheritance tax on a gifted house too. IHT currently stands at 40% and is applied after the £325,000 threshold.
If you still have a mortgage remaining on a property you want to gift, your child will be required to pay stamp duty. Whereas there isn’t a stamp duty requirement for inherited properties.
It is important to know that, if you plan to live in the property rent-free once you have gifted it to your child, they will be liable to pay inheritance tax. It is also more likely that you’ll be subject to stringent checks from HMRC to ensure tax isn’t being evaded.
In addition to financial factors, a large part of deciding whether to gift your property to your child or leave it as inheritance is emotional. Getting to see your children benefit from and enjoy their “early inheritance” is a particularly attractive factor associated with gifting.
Is selling my house below market value the best plan for me?
You are allowed to sell your house to whomever you like, and for whatever price you like. Therefore, there is nothing preventing you from selling below market value.
Selling your house below market value gives your child an excellent, achievable first step onto the property ladder. It can also provide them with an extra source of income for years to come.
Selling your house for below market value can also save you time, because your child may not have to complete paperwork for proof of funding.
On the other hand, if you sell your house for significantly below market value and do not strictly follow all legal procedures, you could be evicted by the state, if they deem that you are tax dodging. This will result in costs significantly higher than the hypothetical £1 you have sold it for.
Therefore, this route is a risky approach which requires expert legal guidance. You should not take this decision lightly.
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