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Can I Sell a House That was Gifted to Me?

Property Saviour » Estate Planning » Can I Sell a House That was Gifted to Me?

If you’ve been gifted a property but don’t want to keep it, you may be asking yourself, “Can I sell a house that was gifted to me?” The answer is yes. It is legal to receive a property from another person as a gift and then sell it.

Surprisingly, gifting property has become a popular way for people to become homeowners. So, why is this happening? Most property owners prefer to give away their assets while they’re still alive to limit the inheritance tax upon their death.

As a recipient of the gift, it’s important to understand what needs to be done, particularly regarding taxes, when you decide to sell the property.

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Why do people prefer gifting property? 

You must be aware that when you pass away, the person inheriting your property must pay inheritance tax. Because of this, some people choose to give their property away to reduce its value and effectively deflate it.

Gifting a family member your property is one of the least complicated ways of selling your house quickly, although there are risks and costs associated with it.

Inheritance tax is the most common reason for gifting property. Property is one of the most valuable assets for many people, and it attracts a significant inheritance tax when you pass away. As a result, gifting property has become a popular choice.

Other reasons for gifting property include:

  1. Rental income,
  2. Asset Disposal
  3. Helping your children get started on the property ladder.

Gifting provides the recipient with an additional source of income, and it is a great way of spreading your assets to reduce the overall tax burden, particularly if you have a diversified portfolio. Furthermore, property ownership helps your children become financially secure and independent.

Is gifting a family member property the right decision for you? 

We can’t give you a definitive yes or no. Gifting a family member’s property is an important decision and requires careful consideration.

One important factor to consider is inheritance tax. At the moment, the allowance is £325,000, but married couples can combine their assets to £650,000 which they can pass on when they die. This may be more than enough for some families, so it is important to bear this in mind before making any commitment.

Can I Sell A House That Was Gifted To Me?
One important factor to consider is inheritance tax.

Transfer of Home Ownership with Deed of Gift 

It’s important to know that transferring ownership of a property through gifting does not require any exchange of money.

This process is known as a transfer of gift or a deed of gift. However, the execution of a deed of gift can be complex. Before you begin, you must ensure that the following criteria are satisfied:

  • The owner must be of sound mind and act on their own free will.
  • Independent legal advice should be sought.
  • The property must not have any outstanding debt secured against it.
  • The owner’s details must be registered in the Land Registry.

Transfer of gift can only occur when all the requirements are met. Even then, the process can be complex, so it’s important to seek professional advice first. An experienced estate planning advisor can be incredibly helpful in this situation.

Additionally, forms must be filled out, so the advice of a conveyancer and solicitor is essential. The Land Registry will need an AP1, TR1, and ID1 form unless you have legal representation. Having a solicitor who has experience with deeds of gifts will be especially beneficial.

Lastly, once the transfer of the gift is complete, you won’t be able to revoke or cancel it unless there is a clause in the deed allowing you to do so. It’s crucial to work with a reputable and competent solicitor to ensure you can make any changes should the need arise.

Gift with a Reservation of Benefit 

If you have decided to give your relative a home as a gift, keep in mind that it may not be a practical choice when considering inheritance tax. You must relinquish any rights to the property before the Inland Revenue officially recognizes it as a gift.

If you continue to stay in the property after gifting it, it will be seen as ‘reserving the benefit’ of the property, and as a result, the gift will be subject to inheritance tax even if you survive it by seven years.

To avoid the gift being classified as a gift with a reservation of benefit, you must make sure you never return to the property.

This may make the gift less desirable, but you could pay market rent if you choose to stay. You should consult a legal advisor to determine if this is a viable option for your situation.

How Do I Transfer or Sell Gifted Property? 

There are two methods of selling a property which has been gifted to you: gifted transfer and buy or sell.

  1. With a gifted transfer, the process can be completed within a few weeks if all involved parties sign documents and send their IDs promptly. However, if there is a mortgage on the property, the standard protocol for the mortgage lender needs to be followed and the process must be handled as a purchase or sale.
  2. Buy or sell is the option to choose in such a case.
Can I Sell a House That was Gifted to Me
Remember, if you keep using a house after gifting it to a family member, it will be included in your estate when you die.

What Happens When I Sell Gifted Property? 

The process of selling a property you’ve been gifted is no different from selling any other property you own.

The main difference is usually the tax implications that come with selling inherited property. You need to pay two taxes on a gifted or inherited property: Inheritance Tax and Capital Gains Tax.

Depending on the circumstances, you may also have to pay Income Tax and Stamp Duty (SDLT).

What are tax implications for property gifts? 

If you have been gifted a house, you may be wondering if you will need to pay taxes on the property. This will depend on two factors:

  • The house is your primary residence
  • Who you are gifting the property to.

Knowing these two things can help you determine if you will be faced with a tax bill.

Your gift will be exempt from inheritance tax if:

Your gift will be exempt from inheritance tax if the following conditions are met:

  1. The giver will have survived for more than seven years.
  2. The property is valued below the nil rate band of £325,000.

Remember, if you keep using a house after gifting it to a family member, it will be included in your estate when you die. This could mean that your loved ones could face a 40% tax rate on anything above the tax-free threshold.

Do you have to pay capital gains tax on a gifted property? If you are the recipient of the gift, you must adhere to the following tax requirements:

How do I avoid capital gains tax on gifted property UK
It is important to note that if you earn more than £50,270 per annum, you will be subject to a higher rate than 18% which is only applicable to Basic Rate taxpayers.

Capital Gains Tax (CGT) 

Capital Gains Tax (CGT) is a levy that must be paid on any profits made when you sell an asset that has increased in value since you obtained it. If you are gifted property through a Deed of Gift, the donor will pay CGT rather than you.

If you make the gifted house your primary residence, you will likely not have to pay CGT when you sell it. However, if the house is not your primary residence, you will be liable to pay 18% of the difference in value between the time you received it and the sale price.

This is because HMRC and the law treat the sale of a gifted house as a disposal of an asset for monetary gain.

It is important to note that if you earn more than £50,270 per annum, you will be subject to a higher rate than 18% which is only applicable to Basic Rate taxpayers. Furthermore, if the gift you are giving the recipient is your second home, HMRC will require you to pay CGT.

On the other hand, if you are selling your property or gifting it to your civil partner or spouse, then you will not have to pay CGT.

How Do I avoid capital gains tax on gifted property? 

When gifting a house, you may be exempt from having to pay capital gains tax (CGT) in the following circumstances:

  • If you are transferring your main home to your children, you can qualify for private residence relief.
  • If you are transferring property to a civil partner or spouse, it will only apply if you have lived together throughout the entire tax year and are not separated.

Income Tax 

If you receive a gift and then choose to rent it out to the donor or any other person, you must declare it to HMRC as rental income. Afterwards, you will need to pay income tax.

How can I avoid inheritance tax in UK
You may still be liable for IHT for at least seven years after you make the transfer.

Inheritance Tax 

It’s a common assumption that once you give away a house as a gift, you won’t have to pay inheritance tax. However, this isn’t necessarily true.

You may still be liable for IHT for at least seven years after you make the transfer. If the donor dies before this seven-year period elapses, you may be required to pay inheritance tax.

If the total value of the donor’s assets exceeds £325,000, the estate will usually take care of any inheritance tax that is due. In some cases, the gift you receive may cause the value of your estate to exceed this threshold.

If this is the case, you’ll need to calculate the amount of inheritance tax due.

The amount you may be required to pay will depend on the length of time between the gift and the donor’s death. Specifically, if the donor dies within three years of gifting you something, you’ll need to pay 40% in IHT.

  1. If the donor dies between three to four years of gifting, you’ll need to pay 32%.
  2. If the death occurs between four to five years after gifting, you’ll need to pay 24%
  3. If the time between the gift and the donor’s death is five to six years, you’ll need to pay 16%,
  4. if the time is six to seven years, you’ll need to pay 8%.

Stamp Duty for Gifted Property 

Worry not about stamp duty for a deed of gift. This is because it is only required if a mortgage is connected to the property and no debt is associated with the house at the time of the transfer.

Is it Better to Gift Property? 

The taxation issue is not the only thing to consider when it comes to gifting property. Other risks could arise, such as:

If the recipient of the gift goes bankrupt, you could lose the property.

When you transfer the deed, you give up your rights to the property. This means that you no longer have a right to stay on the property.

If you are using gifting to avoid Inheritance Tax (IHT), you should be aware that you will only be exempt from paying after 7 years from the date of gifting, as long as you haven’t received any benefits. 

Can you Take Back a Gifted Property 
You should carefully consider gifting property, as once the gift deed is executed in favour of the recipient, you will lose all rights to the property.

Can you Take Back a Gifted Property? 

The answer is no. You should carefully consider gifting property, as once the gift deed is executed in favour of the recipient, you will lose all rights to the property.

This means that you won’t have the right to revoke or cancel the deed unless there is a clause within the deed that allows you to do so.

Wrapping Up! 

Understandably, you might want to sell a house that was gifted to you. However, our advice is not to take this route if the only reason is to avoid inheritance tax.

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Instead, you could look into other options like selling your property to a house-buying company.

This way, you can liquidate some of your assets quickly – these companies usually offer 75-85% of the property’s value in cash. This money can then be invested in something else. 

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