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Can I sell my house and gift the money to my child?

Yes, it's absolutely possible (and legal) to sell your property to your child for £1 (or any other price you choose). Also known as “gifting”, in this article we run through the best way to undertake this type of transaction, how to avoid the key risks and other potential issues you should be aware of.

propertysolvers.co.uk - Can I Sell My House to My Son for £1? Property Solvers Explain...

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Yes, it’s absolutely possible (and legal) to sell your property to your child for £1 (or any other price you choose). Also known as “gifting”, in this article we run through the best way to undertake this type of transaction, how to avoid the key risks and other potential issues you should be aware of.

Why Would You Sell Your House to a Child for £1?

It often comes down to you wanting the best for your kids. It’s a fairly common wish for parents to keep the property in the family and pass it on whilst they’re still alive. What’s more, buying a house as a young person is very different nowadays. With house prices increasing significantly in recent decades, it’s hard for many to afford the deposit let alone be eligible for a mortgage. Other times, the property may need extensive refurbishment and parents hand it over to their children as a project or investment property to supplement their incomes. In a similar vein, we see portfolio owners sell individual properties to their children. You’ll also avoid the costs and hassles of selling via an estate agent or auctioneer. There are also tax benefits as long as the transaction is undertaken legally and not as a means of evasion or avoidance.

Would it Not Be Better to Help My Child with a House Deposit?

Much will depend and your child’s own situation. If they are in steady employment and/or have savings, it can make sense to seek out another property for your son or daughter to buy and explore mortgage options. Some parents prefer to help this way as it helps teach the discipline of homeownership. It is, indeed, worth remembering that giving your child the house for £1 means that he/she is free to do whatever desires. You would therefore need to trust him/her to behave responsibly. It also means that you can keep the property to rent out, live in it yourself or make plans to pass it on at a later date. Before moving forward with this, remember to check whether the mortgage lender accepts gifted deposits (i.e. those that are not sourced by your son or daughter).

What Do I Need to Do to Sell My House to My Son for £1?

Once you decide to go ahead, you’ll need to instruct a conveyancing solicitor to administer the deed transfer into your child’s name. In the eyes of the law, you are not selling the property directly and the transaction is classed as a gift. Having a £1 price in place is a token price that signifies that some value is being paid. In legal terms, this is known as “consideration”. The solicitor will still need to undertake the standard conveyancing processes. Exchange of contracts and completion will also happen in the same way as a conventional sale. Overall, things usually move much quicker relative to conventional home sales as there are usually no searches to wait for and only one line of direct communication. Remember that children under 18 cannot be property owners. It would be a case of them being owned within a trust until they reach the appropriate age.

Would it Not Make More Sense to Wait Until I Pass Away?

This would depend on your own objectives but it should be noted that the tax treatment is going to be different. This is because your son or daughter will be inheriting the property rather than receiving it as a gift. With average property prices doubling every 10-15 years (with some exceptions), your child may have a hefty inheritance tax bill to pay when the time does come. Whilst there are some inheritance tax allowances, your children could end up paying as much as 40% on the value of the property. They will also need to deal with the probate process, which is rarely smooth even with a properly written will. With a gift, however, the value is fixed at the time of transfer. This means you will know exactly how much tax is due.

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It’s also worth bearing in mind that there may also be changes in tax laws that could work out of your child’s favour down the line.

What Costs and Taxes Are There When Selling My House for £1

There are a number of potential charges you should be aware of when selling your property in this way. Mortgage Redemption Costs Of course, if you own the property outright (unencumbered), you’ll have nothing to worry about here.If not, any mortgage and any secured loans will need to be paid in full (minus £1) before the house can be transferred. This may come from the sale / refinancing of another property or other savings. For this reason, rather than selling for £1, you may choose to sell for the amount owed (provided your child can afford to pay that amount for the property). If you are exiting the mortgage before the end of the term, the lender will also impose an early redemption (exit) charge. You can see these costs by requesting a redemption statement. Your solicitor will be able to help with this part of the conveyancing process and communicate directly with the mortgage lender. If your son or daughter is eligible, they may be able to take out a new mortgage – but this will be separate from this initial transaction. Legal Fees Solicitors will generally charge their standard conveyancing fees (i.e. for a conventional residential property sale). However, it may be worth negotiating the price down as the workload is arguably not as heavy. Capital Gains Tax (CGT) If the property has been your Principal Private Residence (PPR) – i.e. you have not rented it out or used it as a second home / business premises – there will be no Capital Gains Tax (CGT) to pay. This tax is based on the rise in property value between when you initially bought it and the point at which you transfer ownership. You can also deduct capital improvement costs, the stamp duty paid when initially purchased, legal and estate agency fees. There is also a CGT allowance that offsets some of your liability (which doubles if you’ve owned the property with a spouse). Note that if you have sold a second property to pay the mortgage on the property being transferred to your child, you would still likely need to pay CGT. The amount of CGT will vary according to what tax bracket you are in. You will also pay the tax on the market value of the property and not on the £1 official sales price. Stamp Duty Land Tax (SDLT) As this type of property transaction is deemed to be a gift, there will be no Stamp Duty Land Tax provided there is no mortgage against it. If there is a mortgage, the standard rates will apply if the level of borrowing is above the stamp duty thresholds. Stamp Duty is also payable if your son or daughter already is a homeowner and will rent out the gifted property or use it as a second home. Inheritance Tax (IHT) The transfer of a property for £1 (as a gift) will be exempt from inheritance tax if you were to pass away within 7 years. This will be tapered in line with how much time there is left within the 7 years. Note that if your son or daughter plans to rent the property back to you for free (or under market value) after the transfer, there will be an inheritance tax liability when you pass away. This is because the law deems this as a gift with the “reservation of benefit”. You should therefore pay the full market rent should you plan to live in the property (HMRC will request proof). Income Tax This will not affect you as the previous owner. However, there will be income tax implications, if your child plans to rent the property back to you or someone else. Should your child decide to take out a personal buy-to-let mortgage, he/she should also be aware of Section 24 of Finance Act 2015 which effectively limits the amount of finance that’s tax deductible (although there is a 20% credit). As a rental property, your son or daughter will also have to pay Capital Gains Tax should they wish to sell at a later date.

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Corporation Tax There will be different tax implications if the property is being sold from a Limited company or other corporate entity. Accountancy Fees For the above reasons, it’s worth speaking to a suitably qualified tax advisor and/or accountant before making any decisions. Remember that any evidence of tax evasion or avoidance is effectively a crime. A Note on Care Home Fees… Some property owners we speak to look to gift their property to children as a means of avoiding “self funding” their care homes by extracting equity. This is because care home fees will be due in full if you own over £23,250 in assets. Generally, any such plans are unlikely to be successful unless undertaken in good time before you knew you would ever have to be admitted into a care home. In other words, it comes down to intent and whether you deliberately planned to “deprive” your assets. After the £1 sale, even though the Deeds are in your child’s name, the local authority (who would otherwise fund your care) may still make you liable based on the value of the property. The sale to your child is therefore disregarded. Note that local authorities can also use “deferred payment agreements” to claim the care home fees back after you passed away and the house is sold.

Risks to Be Aware of When Selling a House This Way

Whilst selling a property to your son or daughter for £1 can make a lot of sense, it’s important to be aware of the potential downsides. For instance, is the plan for you to move into the property as a tenant? Most children will of course never dream of evicting a parent but it may be worth protecting yourself should the worse happen. Indeed, although it has become more challenging to evict tenants, the courts will still protect the legal owner should he/she wish to vacate the property. Another concern parents have is what could happen when the child gets married or enters into a civil partnership. Should they subsequently get divorced, the sale proceeds will get divided – a situation that you will have no control over. This may be a bitter pill to swallow, especially if you witness the situation unravel down the line. Also, if your child plans to take out a mortgage, it’s important to make sure he/she is financially responsible and does not end up in a situation where the bank repossesses the property Finally, should you be on the verge of bankruptcy and thinking of selling this way to reallocate the asset, the receivers could order to reverse the transaction. This is because it’s a deliberate attempt to keep the property in the family as opposed to selling to clear debts. Please note that Property Solvers are not tax or legal advisors. We strongly suggest seeking professional opinions, particularly as transactions like these are practically irreversible. Should you need any advice selling or auctioning your property, please contact our team 24/7. We’re always available to help…

propertysolvers.co.uk - Can I Sell My House to My Son for £1? Property Solvers Explain...

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