The rules and regulations involved when selling a house to a family member

In today’s challenging housing market, one option some people are taking is to sell their houses to their own children. These transactions are usually at prices much lower than the market value of the property, but if Mum and Dad have already paid off their mortgage it might not be such a money loser.

What are the issues to be aware of when selling property to family members?

Why do some people sell their house to a family member?

There are usually very good reasons for selling your home to a family member. You might want to give your son or daughter a helping hand on the property ladder, save them money on a house or give them some financial help. You may be doing it for personal financial reasons.

Is selling to a family member subject to different rules & regulations?

Strictly speaking, no. The legal aspects of the sale will still need to be handled by a conveyancer, and there should still be surveys and searches as with any other standard house sale. Contracts will still need to be exchanged. However, the sale price will dictate to a large extent how differently the transaction is treated.

Is selling to a family member the same as a gift?

The main aspect to consider if you are thinking of selling to a family member is whether the transaction has the status of a gift. If the sale price is significantly below the market value of the property, it will contain a gifted element. The difference between the sale price and the market value will be seen as a gift, and have tax implications. Some people sell their houses for a £1, which means the whole property is a gift.

Tax

Inheritance tax

If the property is being gifted to a family member, there will usually be inheritance tax to pay. Inheritance tax would be due on the gifted value – so if a property with a market value of £300,000 was bought by a family member for £250,000, the gift would equate to £50,000. Inheritance tax would have to be paid by the person receiving the gift if the person selling the property has an estate of £325,000 or more (£650,000 for couples) when they pass away, or if they die within seven years of making the gift.

Capital gains tax

There should not be any capital gains tax (CGT) implications. If the property being sold or gifted was the seller’s main residence it won’t be liable for CGT. There will only be CGT to pay if the property was a second home or buy-to-let property. In that instance CGT will be payable on the difference between the original purchase price and the sale price.

Stamp duty

Stamp duty is not payable if the property has been completely gifted (or sold for a nominal value like £1), or there is no existing mortgage on the property. Stamp duty is only applicable if there is a mortgage on the property and the purchase price has exceeded the stamp duty threshold.

Market value

As we have mentioned, the market value of the property being sold to a son, daughter or sibling will be an important factor in any tax-related consequences. By allowing a property to be sold or gifted at a much lower value than it is worth, you are obviously helping someone buy a home that they may otherwise struggle to afford.

While this may be a good thing to do personally, the government will see it differently! 

Mortgage implications

The seller will need to ensure that the figure they are selling the property for is at least the amount of the mortgage that is outstanding on the property – otherwise they will be left with a shortfall. The more the mortgage has been paid off, the greater freedom a seller has with regard to the sale price.

haart’s top tips for selling your home to a family member

If you are thinking of selling to a family member, keep these things in mind:

• Understand the tax implications – the buyer could easily be hit with a tax bill that eats into the savings they have made on the sale
• Make sure there is nothing that could be seen as suspicious about the sale – any attempt to dispose of assets to avoid paying for care home fees will be subject to close investigation by local authorities
• Take legal advice

How haart can help

Get our advice too – your local branch will be able to let you know how much your property is worth. Please get in touch with us and we will provide a free property valuation for you.