Can I sell my house to my child for £1 is a really common question that is often asked by parents looking to give their children a head start and avoid some of the pesky fees associated with selling a house fast. Gifting a property to a child or family member can be a way to sell your house quickly and easily, but comes with costs and risks that any potential seller should be aware of. It’s really important that you handle your sale of your property to your child by the book to ensure that you’re not taking any legal or financial risks.
In this guide we’ve answered some of the most common questions around selling your house to a child for below market value, including the legality of the sale, what costs are involved, whether gifting your property is a good idea, and what risks are involved with the quick sale of your property to a family member. Read on or use the menu below to find out more.
Can I legally sell my house to a family member?
Selling your house to a child or family member for below market value can be perceived as a bit shady or underhanded. In fact it’s completely legal. In the UK there is no law that prevents you from selling your price at any price you want. Since the beginning of the pandemic property prices have been increasing and minimum deposits on a mortgage have also risen, putting more and more strain on first time buyers. It’s unsurprising that current homeowners want to assist their children and help them get a foot on the property ladder. Whilst selling your house to a family member is legal, you need to keep in mind the associated costs such as capital gains, potential inheritance tax, and stamp duty. In the next section we go into more detail on each of these.
What are the costs of selling my house to a family member?
Selling your house to a family member for below market value (or as little as £1) certainly cuts the cost of a house sale, but there are some important ones to be aware of. Here are some of the costs you can expect:
- Capital Gains Tax: If your property is bought more than ten years ago and has since increased in value then it’s possible that you’ll be liable to pay Capital Gains Tax (CGT). However, you will usually not be liable to pay capital gains tax on a property that is your main residence. The amount of tax you pay is calculated on the market value of the house rather than the actual sale price. The rate of CGT is dependent on your income level, if you’re a basic rate earner then you’ll be liable to pay 18% tax, whilst higher rate taxpayers have to stomach a whopping 28%. It’s crucial that you keep this in mind when selling the property for below market value, since you’ll have less money to cover the cost of these taxes.
- Stamp Duty & Inheritance Tax: If you’re the sole owner of the property and have no mortgage, then there’s no need to worry about stamp duty if you’re selling the property for £1. However, if you have a mortgage on the property where the outstanding finance exceeds the current Stamp Duty Thresholds then you will be liable to pay SDLT on that amount. Be mindful of the current rates, which have changed since the start of the pandemic. If you gift your property to a child or family member and die within 7 years, then the recipient of the property will have to pay inheritance tax on the property if it exceeds the threshold value of £425,000.
- Income Tax: Income tax won’t be applicable in all cases, but if your child or family member begins earning a rental income from the property then this could shift them into a higher tax bracket and mean that they end up owing more income tax. This is still the case if the property is rented back to you.
- Mortgage Costs: If the property is mortgage free, then these costs won’t apply. However, if there is a mortgage amount outstanding on the property then the sale price of the property must be in excess of that amount. If you wish to sell the property for less than the mortgage amount then it will mean remortgaging the property which could incur an early exit fee as well as the cost of the new mortgage.
- Legal Fees: The final cost to be aware of are legal fees. If you’re selling your house to your child you’ll need to register the handover of the deeds to put the property under their name and have a solicitor sign off on the sale.
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Should I gift my house to my children?
There are benefits to gifting your property to your children.
- Asset Disposal: spreading your assets across your family could reduce your overall tax burden if you have a large diversified portfolio. It’s important that you consult an accountant or tax specialist if this is your goal, since it is a form of tax evasion and therefore needs to be done by the book.
- Rental income: Gifting your property to your child can give them a second source of income, which is obviously very beneficial to their financial situation.
- Helping your child get a foot on the property ladder: Many parents want to help their children become more financially secure and independent. Helping them get a footing on the property ladder is a great way to do this and can accelerate the rate at which they’re able to build up a savings pot for later life.
What are the risks of selling my house to my children?
There are risks with any house sale. The complication of property chains, not achieving the price you’re after, and discovering unknown structural issues with the property are just a few. However, the primary risks when selling a house to a family member however are related to emotional outcomes and family disputes.
- Eviction: If you have a dispute with your child or family member after gifting them a property and you continue to live in the house, then you’re at risk of eviction. The legal ownership of the property is now theirs and so it’s important to be mindful that eviction is a real possibility. This could also be the case if they want to sell the property before you’re quite ready.
- Tax: the tax implications that are mentioned above can be significant and should be weighed carefully before gifting a house to a family member or selling below market value.
- Divorce Proceedings: if your child is married and then separates there’s a risk that the house becomes included in divorce proceedings, which could lead to the courts deciding to force a sale of the house and divide the proceeds between your child and their spouse. Therefore, keep in mind that by gifting your property to a married child you could see the asset leave the family (at least in part) at some point.
How can I sell my house fast?
Gifting or selling your property to your child for £1 is one way of selling your house fast. However, there are a number of risks (financial, legal and emotional) that make the decision complicated and fraught with difficulty.
If you’re looking for a simple, quick and fair solution to sell your house fast then we can help you. Our cash house buyers service is designed for vendors looking for a guaranteed sale of their property in as little as 7 days. Alternatively, we offer an ‘Investor Marketing’ route to market for vendors who want to sell their property to our network of trusted investors in under 30 days.
Get a cash offer today! Alternatively, get in contact on 0800 368 8952.