Selling your house for £1 to your son or daughter may seem dodgy, but it is perfectly legal.
Getting on the property ladder is becoming harder, and many first-time buyers are turning to the Bank of Mum and Dad for financial assistance with deposits. Selling your house to your child for just £1 will give them a huge head start in property and help you avoid selling fees in theory.
Selling a house to your child for £1 is effectively called gifting your property, and it requires careful research. There are legal and financial implications that we will cover in this guide.
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Selling Your House to Your Son for £1: A Comprehensive Guide
When considering passing on property to your children, you might wonder if it’s possible to sell your house to your son for just £1. The short answer is yes, you can. However, this seemingly simple transaction comes with a host of considerations and potential consequences. Let’s go into the details.
With minimum deposits rising, more homeowners wish to help their children get their foot on the property ladder.
Is It Legal?
Selling your house to your son for £1 is entirely legal in the UK. There’s no law that dictates the minimum price at which you can sell your property. However, the taxman might view such a transaction with suspicion, so it’s crucial to approach this decision carefully.
Why Consider This Option?
Several reasons might lead you to contemplate this route:
- Helping your child onto the property ladder
- Avoiding estate agent fees and the hassle of a traditional sale
- Keeping the property in the family
- Potentially reducing inheritance tax liability
The Process
To sell your house to your son for £1, you’ll need to:
- Instruct a solicitor to handle the conveyancing
- Transfer the property deed into your son’s name
- Pay any outstanding mortgage
- Consider potential tax implications
What are the costs for selling my house to a family member?
Here are some important costs that you can expect:
Capital Gains Tax
CGT tax is payable if your home was bought more than ten years ago and has since increased in value. The amount of CGT you will pay isdepends on the house’s market value ather than the resale price.
The rate of Capital Gains Tax is also linked to your income tax level, so as a basic rate taxpayer, you will be hit with 18% tax, whereas a higher rate taxpayers can expect to pay a whopping 28%. It is important to remember this tax liability as you’ll need spare funds to pay the taxman after the sale.
Stamp Duty & Inheritance Tax
There is no need to worry about Stamp Duty if you sell the property for £1 without a mortgage. If you have a mortgage, you must sell your property for at least the mortgage amount plus £1, and you could be liable to Stamp Duty Land Tax (SDLT). Always check HMRC’s website for the current rate of stamp duty applicable.
7-year rule
If you are gifting the property to your child or a family member and then die within seven years, then the recipient will have to pay inheritance tax if your probate estate exceeds the value of £425,000. This is called the 7-year rule.
Income Tax
If your child or family member starts to earn income by letting the property, then this could shift him/her into a higher tax bracket, meaning a higher rate of income tax will be payable. This will be the case even if the property is rented back to you – which can’t be done as it is a ‘Sale and Rent back arrangement’ regulated by the FCA.
Mortgage Costs
Note: If your property is mortgage-free, then these costs won’t apply.
If your property has an outstanding mortgage, the sale price must exceed this amount and factor in other costs such as taxes and solicitors fees. There are other costs to consider, such as early exit fees.
Legal Fees
You’ll need two sets of solicitors to give you and your child or family member independent legal advice. The solicitors will handle the legal transfer on the Land Registry and conduct searches and enquiries.
Potential Pitfalls
These are some of the pitfalls of selling your property to your daughter or son for £1:
- Care Home Fees: Local authorities might view this as deliberate deprivation of assets if you need care in the future.
- Loss of Control: Once sold, you no longer have control over the property.
- Family Disputes: It could cause friction with other family members who might feel left out.
- Mortgage Complications: If there’s an outstanding mortgage, your son might struggle to take it on or re-mortgage.
- Future Relationship Changes: If your son gets married or divorced, it could affect the property’s ownership.
Alternative Options
These are some of alternative options you could consider:
- Help with a Deposit: Instead of gifting the entire property, you could help with a deposit on a different house.
- Equity Release: This allows you to access the value in your home while still living there. But watch out for compound interest and charges.
- Shared Ownership: You could sell a portion of your property to your son.
Should I gift my house to my children?
There are several benefits of gifting your property to your loved ones including:
Asset Disposal
Transferring property assets to your family members could potentially reduce your tax liability. As always, it is important to consult with a specialist tax advisor.
Rental Income
Gifting your surplus property to your children means they can have financial income by renting the property. Just be careful of landlord tax and increased regulation, as not everyone is fit to be a landlord.
Helping your children get a foot on the property ladder
Naturally, parents want their children to become financially independent therefore, getting them onto the property ladder will provide them with security to enable them to build a savings pot in future.
What are the risks of selling my house to my children?
There are several risks with any house sale. These include complications with property chains not achieving the anticipated price after discovering structural issues with the property.
The primary risk of selling a house to a family member is related to family disputes. These can include:
Eviction
Once you have gifted a property to your child and you continue to live there, you no longer own the house and, therefore, can be at risk of eviction following an argument or a disagreement. The legal ownership of property now belongs to your family member, meaning that eviction is a real possibility. Your family member may decide to sell the property for its full market value and ask you to leave.
Tax
The tax implications of gifting a house to a family member can be substantial, and unless there’s an agreement and a plan in place, it could lead to arguments.
Divorce or relationship breakdowns
If your child is married, the house becomes part of divorce proceedings, and the courts could force the sale of the house. The sale proceeds will be divided between your child and their ex-spouse. This means that your child will be 50% worse off.
Can I continue living in the house after selling it to my son for £1?
Yes, you can, but you should pay market rent to avoid it being seen as a ‘gift with reservation of benefit’ by HMRC. This arrangement should be formalised in a legal agreement.
Will selling my house for £1 affect my eligibility for means-tested benefits?
It might. Local authorities could view this as intentional deprivation of assets, potentially affecting your eligibility for certain benefits or support.
How long do I need to wait after selling my house to my son before it’s not counted as part of my estate?
For inheritance tax purposes, the gift (difference between market value and sale price) becomes exempt after seven years, assuming you don’t benefit from the property during this time.
How can I sell my house fast?
Gifting or selling your house to your child for £1 is a good idea, provided that you are comfortable with all the legal, financial and emotional risks that come with your decision.
If you are thinking of a straightforward sale, we are here to help. We are one of the very few genuine cash buyers ready, willing, and able to buy any property within the completion in as little as 7 days – or at your timescales. We will pay £1,500 towards your legal fees, too. Because you will be dealing directly with us, there are no estate agent fees to pay either.
You can give your children their inheritance while you are still alive, thus creating special memories. You can also protect your family’s wealth by educating your children on pre-nuptial agreements.
The price we offer is the price that you will receive. Why not make an enquiry today to see how we can help?
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Property Saviour Price Promise
- The price we’ll offer is the price that you will receive with no hidden deductions.
- Be careful with ‘cash buyers’ who require a valuation needed for a mortgage or bridging loan.
- These valuations or surveys result in delays and price reductions later on.
- We are cash buyers. There are no surveys.
- We always provide proof of funds with every formal offer issued.
We'll Pay £1,500 Towards Your Legal Fees
- No long exclusivity agreement to sign because we are the buyers.
- You are welcome to use your own solicitor.
- If you don’t have one, we can ask our solicitors for recommendations.
- We share our solicitor’s details and issue a Memorandum of Sale.
Sell With Certainty & Speed
- Our approach is transparent and ethical, which is why sellers trust us.
- 100% Discretion guaranteed.
- If you have another buyer, you can put us in a contracts race to see who completes first.
- Complete in 10 days or at a timescale that works for you. You are in control.
