Can I Sell My House To My Child For £1?
It is possible to sell your house to your child for £1. It is also legal to do so. If you have ever considered having your adult child engage in house buying or helping your child become one of the millions of property buyers, you may have also wondered, ‘Can I sell my house to my child for £1?’” It is possible, and it has a name – gifting. Essentially you are making a gift of your house to your child so they can become a property owner without the typical cost of buying a property.
According to British Law, you’re not engaging in a direct property sale, so instead, they consider it to be a gift. Having that £1 price on the house is just a symbol. It shows that your child is giving you something for the home. Legally, it’s called “consideration.”
If you’re looking for a good way to ensure everything is legal and make certain you don’t run afoul of the law, this guide is your best bet.
Understanding The Why
Not sure why you’d bother with this £1 sale? For most people, they just want to do what is right for their children. Many parents hope to keep their home in the family and give it to their children after they die, and some hope to do so while they’re alive so they can see it pass to the next generation.
More than that, though, is the fact that it’s tougher than ever to buy a house when you’re younger. With the cost of housing going up quite a bit, it’s harder and harder for people to find the money for the deposit required, and it’s even tougher to be eligible for a mortgage these days. If you’ve ever heard your child ask something like “Can I buy a house on benefits,” you know how tough this housing market is, and selling your home to your child for less than it’s worth can help with that.
In other circumstances, the property may need quite a bit of work, and you may decide to create this type of house-buying option as a possible way for your children to have a project or for them to use it as a property they can let, essentially creating an investment income. Often those who own decent-sized portfolios will do this to help get their children started in the world of home investments.
In still other situations, parents choose to do this for their children before they have to go into a care home, and in some cases that makes sense. It can also, however, come with drawbacks which we’ll talk about in a later section. If you’re wondering how to avoid selling your house to pay for care, this might be an option you’d like to consider. In some cases, house sales are forced when people go into care. If you’re concerned about the answer to “What circumstances can you force a house sale in the UK” because you’re going into care, and you think this might help, you may want to talk to a solicitor.
If you plan to do this, one question parents often have when they ask, ‘Can I sign my house over to my child?’ is ‘Do I need a solicitor to sell my house?’ You do not necessarily need a solicitor when you are ‘gifting’ your house to your child or children. You will avoid the many fees when selling a house if your children become your property buyer if you don’t sell via an estate agent or auctioneer. That may make it easier to eliminate the frustration that sometimes comes with selling your home. There are also some potential tax incentives as long as you handle this legally.
You Do Have Other Options
Gifting the property isn’t the only choice you have in this situation. You could also help your child come up with the money for a deposit. What you decide to do, though, may depend on exactly what your child’s finances are. If they’re employed and have some savings, it may make sense for them to buy a different property and for you to come up with the best mortgages for them to take out. Before you decide to do this, remember to check with the mortgage lender to see if they will take a deposit that has been gifted to them.
If you choose to keep your home and help your child find another property, you have a couple of other options. You can rent it to others, live in it, or even decide to give it to them later. It’s up to you at that point what you decide to do with the home.
If You Do Decide To Make The Gift, Be Careful!
Many parents, even after careful consideration, do decide to gift the home because it means home ownership without the most common strings. Keep in mind, though, that once you do, they own the house, so they can do as they like with it. Also, remember that you will need to be sure to instruct a conveyancing solicitor to administer the deed transfer into your child’s name.
If you hire a solicitor, you can expect the typical house sales conveyancing checks and processes to take place. Exchanging contracts also takes place normally, just as it does with a standard sale.
In most cases, you can expect a far faster sale because you don’t have to undergo all of those searches that you usually do when you sell a home.
It’s important to note here that you have to be over the age of 18 to be a property owner. If you’re hoping for that to happen, you’ll have to put the home in a trust until they hit that age.
Should I Wait Until After I Die For My Child To Get The Property?
This can be a bit complex because it depends on your own goals. Taxes are going to be quite different in this situation because, at that point, it becomes an inheritance instead of a gift, and that means the taxes are quite a bit different.
On average, property prices tend to double every single decade, so your child might have quite a bit of inheritance taxes to pay. The tax bill could end up totalling up to forty per cent of the value of the property. Further, they will also have to deal with going through the probate process. The probate process is not generally a smooth process, even when the will is written legally and properly. Often problems crop up in these situations that you might not be able to foresee.
If you give your home to your child or children as a gift, however, the value of your home doesn’t change once it’s transferred to them. You will then know exactly how much tax will need to be paid upon the transfer.
Keep in mind also, that changes in tax laws are happening all the time. The changes, in the future, could increase the problems that arise upon your child inheriting the property when you pass.
The Fees When Selling A House In This Situation
The next question you may be wondering, is, ‘What fees do you pay when selling a house in the UK?’ There are many different charges you may want to familiarise yourself with when you sell a house, even if you just sell it for this small sum of money.
Initially, you’ll want to understand mortgage redemption costs. If you own your property unencumbered, though, this isn’t a charge with which you need to be familiar. If you have a mortgage or a different kind of secured loan on it, though, you’ll need to pay it off completely before you can transfer ownership. You can get that money in a variety of different ways.
As a result, instead of selling the home for just a pittance, you might want to sell it for what you owe on the home. Of course, this can only happen if your child or children can afford to pay that amount for your property.
If you are getting out of the mortgage before the end of the mortgage term, the lender will also have some exit charges you have to pay. You will be able to access these costs by requesting a redemption statement from your lender.
In most cases, your solicitor can help you sort all of this out as they can talk to the lender on your behalf. Additionally, your son or daughter may be able to take out a separate mortgage to help with this.
Legal fees are another area where you can expect to see some changes. In most cases, solicitors will charge you what is their standard rate
Solicitors will generally charge the typical fees that they do during any sale of residential property. You can negotiate, though, because the work isn’t quite as difficult in this kind of sale, and that could save you at least a bit of money.
Capital Gains Tax (CGT) is another fee you will have to be aware of. That said, if the home has been your main home, sometimes called your Principal Private Residence by solicitors and officials, and you haven’t ever let it to others or used it as a base for your business, you don’t have to worry about paying CGT. If you do have to pay this, you can expect to pay it based on how much the property value increased from the time you bought it until the time you transferred ownership. Fortunately, there are a few different breaks with this tax. If you used it as anything beyond your residence and you made changes to it because of that, you can deduct the costs of those changes as well as the stamp duty you paid when you first bought it. What’s more, though, is that each person has a CGT allowance amount, and if you co-own the property with your spouse, that amount goes up, so it’s possible that you may not have to pay anything.
Many people wonder about CGT if you sold another property but used the proceeds to settle the debt on your mortgage on the home you’re giving to your child. Unfortunately, that’s not an exemption. You’ll still likely owe CGT on that home you sold.
The amount you owe depends on your current tax bracket and how much you made off the home itself. You’ll want to talk to a financial advisor to figure out exactly where you are with that. In most cases, you’ll have to pay the tax based on what the property might go for on the open market, not what you sold it to your child for.
Stamp Duty Land Tax (SDLT) is another fee you need to take into when you are selling a home. Since you are gifting your home to your child or children, there will be no Stamp Duty Land Tax as long as there’s no mortgage on the property currently. If there is a mortgage, you’ll expect to pay standard rates on the home. This holds true, too, if this will be an investment property for your son or daughter or if they intend to use the property as an additional home.
You may also want to consider the Inheritance Tax, which is sometimes called IHT. Gifting a property can be complicated. If you pass away within 7 years of making that gift, they will still have to pay the inheritance tax on it.
There are several things to know about IHT. First, if your child intends to allow you to rent the property after you’ve gifted it to them, particularly if they intend to do so for less than the property would be worth on the open market, they can expect to have an IHT after you die because, legally, this is considered to be a “gift with the reservation of benefit,” according to the law. HMRC does require you to make the receipts of the rental payments available, so it may be best if you pay full price for that property when you rent it back!
In some situations, you’ll also want to consider the income tax when you gift your property to your child. It doesn’t affect you, but it would affect your child, particularly in a situation where they intend to let the property to someone else.
There are a few other fees to consider as well. Corporation tax is one. If you intend to sell the property from a private limited company or some other structure in which your business is housed, you could be taxed on that sale. The same is true for your child if they’ve been gifted the property and their corporate structure decides to sell it.
Accountancy fees also apply, so you’ll want to talk to a tax advisor before you make any choices, as you could be prosecuted for tax evasion if you knowingly violate the laws.
It may also limit your child’s ability to take certain tax credits. For example, if they decide to take a buy-to-let mortgage on the home, they have the potential of a 20% tax credit. If they’ve been gifted the property, though, that’s not the case. Instead, the Finance Act of 2015 reforms limit the amount that’s tax deductible in that situation.
Two Special Situations Of Which You Should Be Aware
If you’re about to go into care or file for bankruptcy, there are some special situations you’ll want to be aware of when you try to sell your property to your child for a very small sum.
If you’ve decided to gift your property to your child before you go into care, know that you will have to pay home fees if you own anything over £23,250. That means it truly doesn’t make sense to do so, as it may still be counted as one of your assets when you go into care.
If you do decide to move forward with the sale for £1, and you know you’ll have to be in a care home soon, the sale to your child could be wholly disregarded, and local authorities may use various tools to claim the fees paid to the care home after you’ve passed away. How long are you liable after selling a house in the UK when you’ve just sold it for a small sum to your child so you can go into care? Essentially until you die, so speak to a solicitor. In some cases, it makes more sense for children to be selling a parent’s house for care in the UK than to sell it to them before you go into care.
The same is true in a situation where bankruptcy is involved. If you choose to sell your home to your child because you’re on the edge of bankruptcy, it’s possible for receivers to undo it because they know you’re simply trying to keep the property in the family instead of using it to clear your debts.
The Other Drawbacks Involved
While the potential costs may not be enough to scare you away from selling your home for just £1, there are some other possible drawbacks involved.
- Eviction: If you’re planning to become a tenant of the property, you likely think your child wouldn’t evict you, but that’s not always the case. Once your child is the legal owner of the home, you could be evicted in certain situations.
- Marriage and Divorce: You may also want to think about what might happen if your child decides to get married or enter a civil partnership. In that situation, the other person would get half of their assets, and that would include the home gifted to them. That could create serious problems for your child and you.
- Future Financial Difficulties: Once your child owns the home, he or she can borrow against it, and that may mean a mortgage. In the event something happens, the bank could then repossess the home, creating some real issues for your child (or you if you’re living there as a tenant).
The Co-Ownership Situation
Before you close that sale, there’s one more thing you may want to consider. The first is co-ownership. Many people ask, “I own half a house. What are my rights in the UK when it comes to selling to my child?” In most situations, this means you are at least part co-owner. To understand what you can and cannot do there, you’ll want to speak to a solicitor, as they will be able to guide you when you move forward with gifting part of your property to your kids.
Selling Your Home For Less Than It’s Worth
So, if you’re still asking, “Can I gift my house to my children,” the answer is maybe. It is possible to sell your house for £1 to your child, but it will be considered a ‘gift.’ There are considerations you should make when making a decision such as this. You need to know how much to budget for fees, taxes and more. You should think about and plan for life’s circumstances and changes should something not work out in your favour to rent the property from your child. Further, you need to understand how the ‘gifting’ works if you are in a co-ownership situation as well as make sure that the property is fully in your name and no mistakes had been made when you took the Deed. The single best thing you can do is talk to your solicitor and tax experts to better understand what you can and cannot do, and how that might affect your home, your child, and your estate. Only then can you sell your house to your child for a very small sum of money and still have the peace of mind you truly need.