Can I sell my home to a family member?
If you own your home and want to sell it at a discount to a family member or even gift it to them while you are still alive, there are numerous processes and legal implications that you need to understand first.
Whether you have a main home or second home you want to give to your children or simply want to sell your home to someone you know for a discounted fee, our guide to selling your home to a family member explains everything.
Can I sell my home for £1 to family?
It is possible and legal to sell your home for £1 to a family member. Before doing so, however, you should consider that they will be the legal owner and thereby entitled to sell it for profit if they so wish.
On the other hand, selling for £1 rather than willing it to them will save them having to pay inheritance tax, as long as you live for another seven years after the transaction. That’s because a £1 sale is viewed as a gift if you stay in the property and do not pay market rate rent to your family member. Your family member can avoid paying inheritance tax if you die within seven years if they live with you or if you only sell them part of your property.
The process for selling your home for £1 is much like selling to a regular buyer. You will need a solicitor or conveyancer to carry out the conveyancing process and conduct searches on the property, before exchange and completion. This means you will need to pay for solicitors to handle the sale.
There are a few other legal and tax implications to consider, such as:
If your family member rents your home back to you, they may face income tax implications and will have to declare any profits in the usual way
If you have a mortgage, you may have to pay early redemption fees and stamp duty. If you do not have a mortgage, then you will be exempt from stamp duty
It is a good idea to use an accountant to help navigate any complicated financial arrangements.
Be aware that £1 sales do not always exempt previous owners from having to sell property to fund care home stays. Local authorities may find the new owner liable for such fees.
Can I gift my home to someone in my family?
Yes, you can gift your home to someone in your family. But as with selling your home for £1, you will need to consider a number of factors before doing so.
The process of gifting your home is called deed of gift or transfer of gift. You’ll need to ensure that all debts secured on the property are paid off and that proper legal advice has been sought so that you fully understand the process. Estate planning advisers can help ensure everything runs smoothly.
As with selling below market value, family members may be liable for inheritance tax if you carry on living at the property and do not pay market value rent. This is called ‘gift with a reservation of benefit’. Again, legal advice is essential so that all of the implications are fully understood by all parties.
What are the tax implications of selling a home for under its market value?
Selling a home under market value can have major tax implications. Primarily, family members benefitting from a cheaper sale will have to pay inheritance tax on the difference between the market value and the purchase price if you die within seven years of the sale. This is because HMRC may consider the below market value sale to be a gift to a family member.
If you die after seven years, then any beneficiaries will not need to pay inheritance tax on the property.
Capital Gains Tax also comes into play if you sell a property that is not your main home for under market value. It is wise to use a specialist tax adviser or accountant to help with such matters.
Should I let my family inherit my home rather than gift it early?
This comes down to personal preference. However, it’s important to be aware that if you gift the home and then die within seven years, your family may have to pay inheritance tax anyway.
If you die within seven years and have stayed in the property without paying market rent to the family member to whom you’ve gifted the property, they will be liable for inheritance tax. When passing your home to your children or grandchildren after you die, the inheritance tax threshold stands at a property value of £500,000.
If you let your family inherit the home, they may need to pay inheritance tax as well, depending on the property’s value. An alternative is to downsize and gift cash to family, as a way of helping them get onto the housing ladder while you are able to maintain a smaller home.
Will I be charged any fees when selling my home for a small amount?
It’s advisable to engage a conveyancing solicitor to ensure the process of transferring ownership is done correctly. This will cost around £1,000.
It’s also a good idea to get advice from a tax planner and legal advice if you want to gift or sell your property below market value. They will be able to give you insight into any tax liabilities that may arise as a result of selling your home for a small amount. Fees for such advice vary, so it’s a good idea to get a number of quotes.
Stamp duty will only be levied if you have a mortgage on the property and the amount borrowed is above the stamp duty threshold, which stands at £250,000 in 2023. You may also have to pay an early redemption fee if you are paying off your mortgage before the end of its fixed term.
What happens to my mortgage?
Mortgage lenders will require you to pay off your mortgage in full before gifting a property. That’s why it’s best to gift or sell for a low value only if you own the property outright and with no outstanding debts secured against it.