Gifting property to children is becoming more and more commonplace. As the price of property climbs ever higher, this is one solution families are using to get their children onto the property ladder. There are tax implications, however, and it may not be the solution to all your financial issues. Here we look at what happens if you decide to sell your property to a family member for a nominal value.
Is this the same as gifting property to children?
Yes. Although it will still require conveyancers to handle the legal aspects, the change in ownership will qualify as a gift. Legally it won’t be regarded as a sale, but a token value has to be involved.
What do I need to do to sell my house for £1?
A conveyancing solicitor will need to be instructed, in order to handle the transfer of the deeds from you to your son or daughter, or other family member. Contracts are still exchanged and completion dates confirmed. So there will still be legal fees to pay.
If you own the property with a mortgage, it might not be possible to sell for a purely nominal figure like £1. If there is an amount outstanding on your mortgage, this will need to be covered by the person you are gifting the property to. So it would make sense for this to be the price of the gift.
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What are the other costs involved?
Mortgage redemption costs for gifted property
If you do still have a mortgage, are you in a discounted term? If so there will be a redemption figure to pay, along with any outstanding borrowing. Ask your solicitor to contact your mortgage provider for a mortgage redemption statement.
You will be charged legal fees by your solicitor, but as their workload is not as heavy as a conventional property sale it may be worth asking for a reduced fee.
Capital Gains Tax (CGT) on gifted property
You are not liable to pay capital gains tax on gifted properties if it has been your Principal Private Residence. There will be CGT to pay if it was used as a business premises or rented out. From any CGT bill you can deduct capital improvement costs, stamp duty, legal fees and estate agents’ fees.
Stamp Duty Land Tax (SDLT) on gifted properties
If there is no mortgage on the property, there will be no stamp duty incurred. Standard rates of stamp duty will apply if the mortgage exceeds the stamp duty threshold. Stamp duty is also paid if your child already owns another home and is either using the gifted property as a second home or renting it out.
Inheritance Tax (IHT) on gifted properties
This is one of the main reasons why people prefer to gift property, rather than leave it to children as part of their estate when they pass away. If you do not die within seven years of making the gift, there is no inheritance tax to pay. If parents die within three years, inheritance tax is charged at 40%. After this inheritance tax is charged at what is called ‘taper relief’, and only if the value of the gift exceeds the tax-free threshold.
Income Tax on gifted properties
There will only be income tax implications if your son or daughter chooses to rent out the property they are gifted, either to you or someone else. Capital gains tax will also need to be paid in this circumstances if the property is sold at a later date.
Can I avoid care home fees by gifting my house?
People may be tempted into thinking that gifting their property effectively ‘disposes’ of it, so it can’t be used to measure what you can afford should you have to go into a care home. However, this is seen as deliberate ‘deprivation of assets’, especially if the gift is made a short period of time before the care home fees are required to be paid.
Local authorities will judge on what the intent was behind your decision to gift the property, and the value of the property will usually still be counted as part of your assets.
Can I give my child money to buy a house?
Yes. If you want to help your son or daughter raise a deposit you can make a gift to them. All the beneficiary needs to do is provide written confirmation to their mortgage provider that it is a gift, so that it is clear it is not a loan that has to be repaid.
Let us help value your property
If you are thinking of gifting your house to your child, but are interested to know how much your property will be worth when it is transferred, please get in touch with us and we will provide a free property valuation for you.