Can You Sell a House to a Family Member?
Estimated reading time 8 minutes
Selling a property that you own to a family member can be a great way to help them get on the property ladder or assist you with a fast house sale when it’s been hard to sell in the past. How you sell it, or gift it though, can be fraught with tax implications and a few legal issues along the way. In this edition of our blog, we explain how you can sell a house to a family member and have them benefit from a house you once called home.
Selling a house to a family member
Selling a house to a family member is relatively straightforward, and unlike selling via the more traditional means, isn’t a property transaction that will get halted due to a chain break or buyer pulling out. It can, however, introduce a few complicated issues surrounding capital gains and inheritance tax.
The amount you sell it for, and whether you give the property to a family member as a gift largely determines the tax status of the transaction and it could have further reaching implications than you first thought.
The process for selling a home to a family member is much the same as selling the home on the open market. You will still need a solicitor, you will still need surveys, you will still need searches and there will still need to be contracts. Perhaps the only difference is the lack of chain and the potential delays they may bring.
So how much can you sell your house to a family member for?
Can I sell my house to a family member below its true value?
You can sell your home for any price you like to a family member and if you already have property plans in place, you could sell it to them for as little as £1 and have them then benefit from the profits when they sell it at full market value. This is also a way for the costly inheritance tax to be avoided, as long as you live for another seven years after you have sold it to them. This is because selling a house for £1 is seen as a gift if you remain living in the property and do not pay the current market rate rent to the family member. The inheritance tax can also be avoided by your family member if you die within seven years, and they live with you, or you have only sold them a portion of the home.
This is often seen as a great way to help a family member who may have struggled to get a home for their own family. Just remember, as we mentioned earlier, there will still be conveyancing fees to pay too.
Once the property is sold there may also be additional things to factor in that could deter the family member from wanting to purchase it. If, for example, you still live there, and pay rent to the family members who now own the home, they will have to declare profits and pay the appropriate income tax.
Also, if there is still a mortgage on the property when you sell, you may be required to pay stamp duty and early redemption fees too.
Can I just give my house to a family member?
You can just gift your home to a family member if you choose. Like selling it under market value though, there are certain things to consider.
When you gift a property, you will need to make sure that there are no outstanding debts against it. It would also be advisable to get advice from property law experts, so you make sure that neither you nor the people you are gifting are caught out with any surprise charges at some stage.
Inheritance tax is still a possibility for the new owners if you continue living there and do not pay the market rate rent.
Tax implications of selling your house to a family member
If you are selling your home to a family member, it is likely you will sell at a more favourable price than if you were selling on the open market. As a result, you will be selling for less than its market value. This means you will need to weigh up the Inheritance Tax, Capital Gains Tax and Stamp Duty that could apply.
Inheritance tax when you sell a house to a family member
When you sell a home to a family member for less than it is truly worth, the difference between what it sells for and what it is valued at will be viewed as a gift. Therefore, using the price we mentioned earlier, if the property is worth £300,000, and you sell it to the family member for £200,000, a gift of £100,000 has been given.
This would see the £100,000 potentially subject to inheritance tax. However, the IHT would only apply if you were to pass away within seven years of selling the property or if you have an estate worth more than £325,000 or £650,000 if married.
Capital gains tax when you sell a house to a family member
Capital gains tax is unlikely to apply but it could. This tax will only apply when you sell a property for more than you paid for it and that property is not your main home. Therefore, if you sell your house to a family member and it has been your main home, no CGT will be due.
If though, you own a second property and it is that that you sell to your family member, Capital Gains Tax will be due on the difference between what you paid and what you sold it for.
Stamp duty when selling a property to a family member
If you are selling a home to a family member, stamp duty may apply in certain circumstances. If they are a first-time buyer when you sell the property to them, they will not pay any stamp duty on the first £425,000. If they have been on the property ladder before, they remain exempt from stamp duty for the just first £250,000 of the purchase price.
Should this home become a second home for the family members you are selling to, they will pay an additional 3% on the standard stamp duty rates. However, there are ways stamp duty can be avoided on a second home.
Tax implications of gifting your property to a family member
When you opt to gift a home to a family member rather than sell it, you could find that there are still substantial taxes to pay.
Inheritance tax when you gift a property to a family member
The family members you gift the home to might find that they have to pay inheritance tax should certain factors come into play. If you were to die within seven years of gifting the home, have an estate worth more than £325,000 (£650,000 if a couple) or you gift it to them but remain living there without paying a market rate rent. However, if the property becomes inherited upon death, an extra £175,000 can be added to the estate value meaning that the estate can be worth £500,000 before inheritance tax could be charged.
Capital gains tax when you gift a property to a family member
There is no capital gains tax paid on a property you gift a family member if this home has been your main residence since you bought it. Like when selling a property though, if the property is a second home, CGT may apply. Likewise, should the people who inherit the house from you decide to sell, capital gains tax for inherited property may apply.
Stamp duty when you gift a property to a family member
When you gift a property, if it is owned outright, there is no stamp duty to pay, should there still be a mortgage on the home though, the person you are gifting the property to will have to pay SDLT on the value of the outstanding mortgage.
Selling a property can be complicated, especially when it comes to negotiating tax. You could always speak to the cash house buyers at Gaffsy. We organise a guaranteed fast house sale and can have funds in your account within just seven days. You can then gift that cash to your family member if you wish so they can start funding their own property plans. We buy any house too, regardless of the location, condition, or type. Why not contact our team today?