Can I sell my house to my son for £1?
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Can I sell my house to my child for £1?
Legally, you are able to sell your property to your child for any price you both agree, even as low as £1. However, you should be aware that there are other costs that you will need to factor in, such as stamp duty, potential inheritance tax, and legal costs that will quickly and dramatically increase your costs.
Getting on the property ladder has been getting more and more difficult for first-time buyers for a long time, but since March when coronavirus brought the whole world to a standstill, things are now much harder for everyone. Homeowners who are struggling with their house are looking to sell, but with house prices dropping and mortgage lenders increasing their requirements, there are homeowners across the country looking to help their children own their own house. We Buy Any House look into a hugely popular query and show you what you should consider if you’ve been thinking about selling your house to your child under market value.
Can I give my child money to buy their own house?
Previously, mortgage lenders were happy to accept gifted money when assessing a prospective buyers’ mortgage application, as this was one of the ways a lot of applicants were able to put down their deposit. However, since the pandemic struck the world and interest rates hit a historic low, mortgage lenders had to change the way that they worked to continue.
Before, they would accept a deposit as low as 5% for some houses, but at the start of the lockdown, this had tripled to a 15% minimum. It has now been lowered to 10%, but this is still double what some potential buyers would have been planning to pay. This has meant that more and more applicants have had to find ways to increase their deposit, which has been made even harder with millions of people being struck by unemployment.
If you’re looking to gift money to your child for their mortgage application, they will need to check with their lender that this would be accepted. Some mortgage lenders, such as Nationwide, have implemented rules that limit gifted deposits, with applicants having to prove that at least 75% of their deposit is from their own savings and not gifted.
Are there other costs involved if I sell my house for £1?
As is the case when anyone buys or sells a house, there are other costs involved in selling your house to your son for £1. You should make sure that you’re fully aware of the entire process and the extra costs involved before you move forward, so you don’t find yourself in a difficult position partway through. Some of the common costs are:
A big complication you might encounter when selling your house to your child under the market price is the potential mortgage repayment. If you’ve paid off your mortgage and own the house outright, you don’t need to worry about this, but if you’re still paying the mortgage back, you will need to pay back the remainder in full before you can sell the house. This can sometimes push homeowners to take out another loan to pay this in full and can make things more complicated.
2. Capital Gains Tax
If you have a second house that you’re looking to sell to your child rather than your primary home, then you will need to pay Capital Gains Tax. These rates depend on your income tax status, so if you’re on a basic rate you will need to pay 18% tax, or if you’re a higher-rate taxpayer, you’ll pay 28%.
How is Capital Gains Tax calculated?
The amount of tax that you pay will be calculated from the market value of the house, not the amount that you sell for. Because of this, it’s recommended to work out how much Capital Gains Tax you’d need to pay before you agree to sell. On a house worth £200,000, you would need to pay around £36,000 as a taxpayer- which is a huge amount of money if you’ve sold the house for £1 and have no proceeds to pay this off with.
3. Legal fees
When selling a house, you will need to legally register the handing over of the deeds to take the property out of your name and put it into the name of your child. You will need to have a solicitor sign off on the sale to make sure that everything is legal, and you’ll need to pay for this service.
Will I need to pay Stamp Duty?
The Chancellor of England announced a stamp duty holiday in place until March 2021, but it’s also worth knowing that selling to an immediate relative such as your child will let you cut stamp duty as there is a give exemption in the rules.
With this in mind, if the property is given as a gift, you should be aware that if you were to pass away within 7 years, your family member would need to pay inheritance tax if the property value exceeds the threshold of £425,000.
Are there risks to selling my house to my child?
There’s a level of risk to any house sale, whether it be the risk of the sale falling through or not being able to get the price that you’re looking for if there are unknown issues in your property. The risk, however, of selling to your child or any other family member is if things get emotional and that affects the outcome of the sale. Make sure that you’ve got a plan of what will happen after the sale; will you be moving out of the property for your child to move in, or will you be paying them rent to live there? If you’re renting the house from them, there is a risk of them no longer wanting to rent to you and evicting you. If they own the house, you will have no legal claim to the property and won’t be able to stop that happening.
There is also the risk of the house being included in divorce proceedings if your child is married and separates, which could see the courts deciding the house is to be sold, and the proceeds split between your child and their ex-partner. In this case, if you’re not in a position to buy the property back, you could lose the house and end up having to find somewhere else.
While you can sell your house to your child for £1, you need to consider all of the implications before you move forward. Consider the taxes that you’ll both need to pay, the risks involved, and what your long-term plans are. If you’re looking to sell your house and your child is looking to buy it as you’ve had little other interest, you can get in touch with us. We Buy Any House can provide you with a free cash offer and show you how you can sell your house in as little as 3 days.
How do I sell my house fast?
If you’re looking for a quick house sale, you’re in the right place. We Buy Any House can get you a free cash offer on your property and show you how you can have your house sold in as little as 3 days. If you want a quick house sale, get in touch with us today.Back to all articles
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