Selling your property to someone else in your family, like your children, can be a great way to help a relative get on to the property ladder.
However, it’s a complex process – especially when it comes to tax.
In this guide, we explain everything you’ll need to consider when either selling or gifting a property to family.
Can I legally sell my house to my children?
Legally, you can sell your property to anyone – including your children.
But there are some major tax and lending implications you’ll need to consider if you sell your home to your children for less than its market value.
The tax implications of selling your house to your children
If you decide to sell your home to your children for less than its market value, you’ll need to consider:
1. Inheritance tax
When you sell your home to a child for less than it’s worth, the difference between its sale price and market value will be seen as a ‘gift’ under inheritance tax rules.
For example, if your home is worth £250,000 and you sell it to your son or daughter for £200,000, £50,000 would be seen as a gift and may be subject to inheritance tax.
Inheritance tax would be due on a gift like this if:
- Your total estate is worth more than £325,000 (or up to £650,000 for couples)
- You die within seven years of making the gift
2. Capital gains tax
Capital gains tax becomes due when you sell a property for more than you paid for it.
However, capital gains tax doesn’t apply to a property that’s your main home.
So, if the home you sell to your children has been your main home since you purchased it, you won’t have to pay any capital gains tax.
If you rented it out in the past, you’ll qualify for partial Private Residence Relief – meaning you’ll only pay a portion of capital gains tax in relation to the time the property was let.
If own more than one property, perhaps a main home and a buy-to-let property and sell the buy-to-let to your child, capital gains tax will be due on the difference between what you paid for the property and what you sell it for.
Selling below market value and capital gains tax
If you sell a second home or buy-to-let property to your children for less than you paid for it and less than its current market value, HMRC will calculate your capital gains tax bill based on its market value rather than reduced sale price.
You may also receive a fine, so this should be avoided.
3. Stamp duty
When selling your home to your children, they may have to pay stamp duty:
- If they’re a first-time buyer, the first £425,000 of the purchase price is stamp duty-free
- If they’ve owned a property in the past, the first £250,000 of the purchase price is stamp duty-free
- If they already own another property, they’ll pay a 3% second home surcharge on all stamp duty bands
Mortgage implications when selling to children
If you decide to sell your home to your children for less than its market value and you have a mortgage, you’ll need to sell it for at least the outstanding mortgage amount.
For example, if your home is worth £300,000 and your outstanding mortgage is £220,000, you’d need to sell for at least £220,000 for the mortgage to be paid off upon sale.
Do I need a solicitor to sell my house to my child?
If you agree to sell your property to your child, you’ll both need solicitors to carry out the legal work on each side.
Both solicitors should be independent of one another to avoid a potential conflict of interest.
Can I give my house to my children?
Gifting property to children has become more common as parents look for ways to help their children get a foot on the property ladder.
If you own your property outright with no mortgage, you can gift it to your children
The tax implications of gifting a property to children
If you decide to gift a property you own outright to your children, you’ll need to consider:
1. Inheritance tax
If you gift a property you own outright to your children, they may have to pay inheritance tax if:
- You die within seven years of making the gift
- Your total estate is worth more than £325,000 (or up to £650,000 for couples)
- You gift the property to them but continue to live there without paying rent at the market rate
If your child inherits your property upon your death, the Residence Nil Rate band applies, meaning an additional £175,000 can be added to the standard nil rate band.
This means a total estate valued at less than £500,000 (or up to £1million for couples) would not be subject to inheritance tax.
2. Capital gains tax
If the property you gift to your children has been your main home since you first bought it, you won’t have to pay capital gains tax.
But if the property is a second home or buy-to-let, you may be liable for capital gains tax on the difference between what you originally paid for the property and its market value at the time of the gift.
3. Stamp duty
If you own the property you’re gifting to a child outright, they won’t have to pay stamp duty as there’s no purchase price involved.
However, if you’re gifting your home and you still have a mortgage, your child would have to pay stamp duty on the value of the outstanding mortgage.
Mortgage implications when gifting property to children
If you have a mortgage on the property you want to gift to your child, your lender will need to agree to this.
The lender would also be required to check if your child can afford the monthly repayments.
Can I sell my house and give my children the money?
It’s possible to sell your home and pass the proceeds of the sale to your children.
However, the money would be treated as a gift for inheritance tax purposes, meaning you would need to survive for seven years after the gift was made for it to be tax-free.
If you died within seven years of gifting the property sale proceeds, the amount would be added to the rest of your estate.
If the total value of the estate exceeds the £325,000 threshold, the amount above that figure would be subject to inheritance tax.
Further reading…
- The new stamp duty rules – what you’ll pay now
- Nine tips for a stress-free house move
- All the fees you need to know about when moving
If you are looking to sell your property, we’re here to help. Contact your local Parkers branch today.
