Can I Sell My House To A Family Member Below Its Fair Value?

Person Standing Outside The House

What is your home worth on the open market? If you’ve ever thought about selling your house, you’ve probably wondered a bit about what it might be worth. Are there situations, though, where you might accept a number well below that value? Imagine, for example, your nephew is about to get married. He and his fiancée are looking for the perfect house, and you’re ready to make a move. Does selling a house privately to a family in the UK change the idea of what your home is worth? If you’re willing to accept less than fair market value, is it even legal to do so? This quick guide will help you sort through all of your questions.

What Does Below Market Value Mean?

It might help to start with a definition of below-market-value property prices. Selling a house below market value means selling it for a price that is lower than the current fair market value. The fair is the price you and the buyer agree on in an open and competitive market. When you sell your house below market value, you are essentially offering it at a discounted price compared to what similar properties in the area are selling for.

Why Would You Want To Sell Your Home Below Market Value?

There are several different reasons to sell your home below market value to a family member. Maybe it’s easier for you. Selling to a family member can simplify the selling process, as you may already have a level of trust and understanding with the buyer. It can save time and effort by avoiding the need to list the property on the market, market it to strangers, or go through extensive negotiations. It’s also possible that you’re trying to support a family member either emotionally or financially. It can be a way to help a loved one secure a home or ensure they have a stable living situation. It may also allow you to provide financial assistance to a family member who may not be able to afford the fair market price. It can be a way to help them achieve homeownership or alleviate financial burdens. It could be, too, that you have a sentimental attachment to your family home and prefer to pass it on to a family member below market value as a way to preserve the family legacy. No matter what the reason, though, the important thing to remember is that this can be easily done, but you may also need to understand the tax implications of selling a house below market value in the UK.

Is Selling A House To A Family Member In The UK Legal?

In short, the answer to this question is easy. Absolutely! You may have to deal with some problems when it comes to mortgaging the house and the tax implications of selling a house below market value in the UK.

Mortgage Considerations

If you do decide on selling a house privately to a family in the UK for below market value, it’s important to note that not all mortgage lenders will give your family members a loan to buy the property. Some lenders don’t like to be involved with transactions between lenders.

Once they do find a lender who is willing to handle the transaction, though, the lender will assess the borrower’s income and affordability as they consider making the loan. The buyer would need to demonstrate that they can afford the mortgage repayments based on their income, even if the purchase price is below market value. The lender will typically conduct affordability assessments to ensure the buyer can meet their financial obligations. Additionally, the lender will still require a professional valuation of the property, even if it is being sold below market value. The valuation will help the lender determine the property’s current market value and assess its suitability as collateral for the mortgage. If it meets the lender’s guidelines, they are likely to go ahead and make the loan.

The Tax Implications Of Selling A House Below Market Value

There are some tax implications involved in this kind of sale that you may also need to consider when selling a house to a family member for less than its worth. As the seller, you may still be liable for CGT on the property, even if you sold it below market value. CGT is the difference between what you sold it for and what you originally bought it for. Selling below market value may result in a reduced gain or even a loss, which could potentially reduce your CGT liability. However, consulting with a tax professional or HM Revenue and Customs (HMRC) is important to determine your specific tax obligations.

Inheritance taxes are another consideration. If you sell a property below market value and pass away within seven years, the value of the property may still be subject to IHT. The difference between the market value at the time of the transfer and the actual sale price could be considered a gift and potentially be subject to IHT if your estate’s value exceeds the current threshold.

Finally, it’s important to remember that you’re not the only one who may be subject to some tax obligations in this transaction. The relative who bought your home may be required to pay SDLT based on the property’s market value, even if they purchased it at a lower price. SDLT rates depend on various factors, including the property’s value and whether the buyer is a first-time buyer or purchasing a second property. It’s important for the buyer to consult with a tax advisor or HMRC to understand their SDLT obligations.

Should You Sell Your Home To A Family Member For Below Market Value?

Can you sell it to a family member in the UK for less than it’s worth? Yes. Should you? That’s another question entirely. If your goal is to be helpful to the family member or keep a property in your family, that’s a great reason to sell it to them. If you just need to get out of your home as quickly as possible and you’re willing to accept less than market value to make that happen, there are other, simpler options on the table. For example, you could sell it to a cash investment company. If you’ve ever seen the advertisements that say “We Buy Any House,” how much below market value you’re willing to sell your own home for may be applicable if you want to contact one of those companies. In most cases, they’ll pay up to 80% of the value of your home, which means you may not need to sell to a family member to get the money you need to move on with your life. The important thing is to evaluate your reasons for selling your home, and then make a decision that fits your life.

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