• Legality and Process: Selling your house to your child for £1 is legal, but the process involves several legal and financial considerations. It's not as simple as exchanging keys for a pound.
• Reasons for Selling: Parents often sell their homes to their children at a nominal price to help them get on the property ladder, given the current high property prices.
• Gifting vs Selling: Selling a property for £1 is essentially gifting it. This approach can help avoid higher inheritance tax that comes with leaving the property in a will.
• Necessary Steps: You will need to work with a conveyancing solicitor to handle the legal aspects, including transferring the deed and managing contract exchanges.
• Additional Costs: Be prepared for additional costs such as mortgage redemption fees, legal fees, and potential taxes like Capital Gains Tax, Stamp Duty Land Tax, and Inheritance Tax.
• Alternatives: Besides selling for £1, parents can consider gifting cash for a deposit or buying another property outright for their child.
Parents often recognise that it’s difficult for their children to get on the property ladder and buy a property of their own, especially today, when property prices are higher than ever before. One way that parents help their children get their hands on a home is by selling their home at a discounted rate.
And that can be an extremely discounted rate. If you’re wondering, ‘can I sell my house to my son for 1 pound?’ or “can my daughter buy my house for £1) - the answer is. In fact, you can choose to sell a house or property for any amount you’d like to your children. With that said, the process isn’t as straightforward as asking for a pound coin and handing them the keys. There are legal, financial, and personal considerations to keep in mind before making your decision.
In this post, we’ll run through everything you need to know about selling your home for £1 to your children.
There are a host of reasons why someone would want to sell their home to their child for effectively nothing. However, the most common reason is that they want to help out their son or daughter. Today’s crazy property market means it’s more difficult for younger people to buy a property — and especially a good property — than ever before, with many renters finding it virtually impossible to raise money for a deposit, let alone meet monthly mortgage payments.
Even though you may plan to leave your child your property in your will, selling it while you’re still alive ensures that you get to see the impact of your decision. It can give you peace of mind to see that your child has a stable living arrangement.
People may ask, ‘can I sell my house to my children for 1 pound,’ but it’s not really correct to think of it as you selling them the property. For all intents and purposes, it’s a gift. The small amount you’re asking for is basically symbolic, and UK Law won’t really recognise it as a ‘sale’ of your home. The legal term for the symbolic value amount is ‘consideration.’
You could also consider leaving your property to your child in your will as a ‘gift,’ too, but you should note that there are different tax requirements for inherited homes, and your child might be left with a big bill — in some cases, they may end up paying as much as 40% of the property value in taxes. Selling your home to your son or daughter for £1 is as close as you can get to it being an actual gift.
The process of selling your home to your son or daughter for £1 (or any other amount) is essentially the same as selling to anyone else, just with fewer steps. For instance, you won’t need to work with an estate agent, or house photographer, or take any of the other steps typically involved when selling on the public market.
You will need to work with a solicitor, though. They’ll be in charge of transferring the deed into your son or daughter’s name, managing the exchange of contracts, and filing the completion date paperwork. So while the house will be sold for £1, there will be some additional costs, though it’s worth noting that your solicitor fees will likely be cheaper than if you were selling on the open market.
What are the other costs involved?
You won’t be able to sell your son or daughter your property for £1 if there’s an outstanding balance on the mortgage. You can use your savings or refinance/sell another property to clear the balance. Another option is to sell your property to your child for the amount owed on the mortgage.
Note that it’s worth speaking to your mortgage lender before undertaking the process to establish any early exit charges you may need to pay. Your solicitor can do this on your behalf.
The legal process of selling your house to your child for £1 isn’t all that different from selling to a member of the public, and, as such, you’ll need to work with a conveyancing solicitor. Most solicitors have set prices for their conveyancing services, though some may offer lower rates — or be willing to negotiate — for home sales between family members since these sales often involve less paperwork. Find out more about what conveyancing is, and why a solicitor like the experts at TBI can help.
In most cases, there will be no Capital Gains Tax to pay if you sell your home to your son or daughter for £1. However, that’s only the case if the home was used as your Principal Private Residence (as opposed to being a second home/rented out property/used for business purposes). If that’s the case, then you will have to pay Capital Gains Tax on the difference in property market value between when you bought it and when you sold it to your child.
You can deduct certain expenses from your Capital Gains Tax bill, including any Stamp Duty, legal fees, and home improvement costs.
You usually don’t have to pay any Stamp Duty Land Tax on properties transferred as a gift, though certain exceptions apply. You’ll need to pay SDLT if there’s still a mortgage on the property and the value goes beyond the Stamp Duty threshold. Stamp Duty will also apply if your son or daughter already owns a home and does not intend to live in the property — for example, if they’re going to use it as a second home or rent it out.
There are a number of advantages to selling your property to your child for £1, including avoiding paying inheritance tax. However, there are some scenarios when there may be an inheritance tax liability. You’ll need to live at least seven years after gifting the property for there to be no inheritance tax requirements. The percentage of inheritance tax that must be paid gradually decreases year-on-year until their seventh year is reached.
The value of your estate also plays a factor. Inheritance tax requirements would kick in if it has an overall value of £325,000 for individuals or £650,000 for couples.
If you’re the one selling the home (the parent), then you won’t need to worry about income tax. However, your son or daughter may have to pay income tax depending on their plans for the property. If they plan on renting it out (either to a member of the public or back to you), then they’ll need to pay income tax.
Many parents decide to sell their property to their child for £1 in order to help them get on the property ladder. However, it’s not the only option available to parents looking to help their son or daughter. You could also give them a cash gift to help them pay for a deposit for a mortgage. There’s no limit to how much money you can give your child, though be aware that gifts over £3000 may be subject to inheritance tax if you were to die within seven years of the money transfer.
You may also buy another home outright for your child if you have the money to do so. Ultimately, the decision depends on both your and your child’s situation. You may want to familiarise yourself with how long the conveyancing process takes before making your decision. If selling a property in your name, you may also need to check details on changing ownership such as how much it costs to change the title deeds and what is required.
You can avoid care home fees by giving your house to your child, but you can’t do so consciously. Care home fees have to be paid in full if the individual has more than £23,250 in assets, but that doesn’t mean that you can simply sell your property to your son for £1 in order to reduce your asset value and get reduced care home fees.
If you sell the property shortly before you enter a care home, the local authority may make you pay care home fees as if you were still the owner of the property if they believe that you intentionally tried to avoid paying fees.
Yes, parents can give their children money to buy a house without paying tax. However, how much you’re able to give tax-free depends on a variety of factors. As a basic principle, parents are allowed to give £3000 tax-free to their children (not that this is the total amount; if you have more than one child, the £3000 limit applies to the collective money you give to all your children). Each parent can give £3000, allowing a single child to receive £6000 tax-free.
You’re free to give a larger cash gift, though it may be taxable depending on how long passes after giving the cash before your death. If you give your child £25,000, you’ll need to live for at least seven years for there to be no tax obligations.
There’s no hard and fast rule regarding the best time to give your child your property. In some cases, waiting until you pass will be the best solution. For instance, if you’re planning to live in the home for the rest of your life and/or your child doesn’t necessarily need the property. However, it’s important to be aware that inherited homes are typically subject to higher taxes.
Inherited properties can have a tax bill that’s worth some 40% of the property value. With house prices rising all the time, it’s possible that your son or daughter will have a big bill to pay. Dealing with the probate process can also be difficult, too.
Selling your property to your child for £1 certainly has its advantages, but it’s not perfect. As with all things, there are pros and cons that you’ll need to be aware of. Let’s take a look at some of the main advantages and disadvantages of selling your house to your son for £1.
Younger people today have more difficulty getting on the property than in the old days. For many, self-funding home ownership is not a realistic ambition. By selling your house to your child for £1, you’ll be getting them on the property ladder and have the satisfaction of seeing that your child is well set up for life.
Inherited homes are generally subject to high tax obligations, which can be as high as 40% of the property value. Provided it’s managed correctly, the tax owed on gifted properties will be significantly lower.
If you’re planning to continue living in the property, then be aware that your child will have the final say over property-related decisions. While it’s highly unlikely that they would evict you, it would be theoretically possible.
Selling your home to your son for £1 can be beneficial, but only if specific criteria are met. For instance, no inheritance tax will be owed only if you live for seven years after the transfer of the property.
It’s important to think carefully before deciding to sell your house to your son or daughter for £1. Before doing so, make sure you have a thorough understanding of the tax implications of the decision. It can also be worthwhile speaking to an expert, who will be able to offer more detailed advice.
If you’re ready to get started, then don’t hesitate to get in touch with the team, here at Tilly Bailey & Irvine. Our team of specialist conveyancing solicitors are on hand to ensure the transfer of your property to your son or daughter runs as smoothly and straightforward as possible. To learn more about our services, please call 0333 444 4422, or visit one of our local branches at: Hartlepool, Stockton, Barnard Castle or Wynyard.
