Can You Sell Your House for £1?
Selling your house for £1 to a family member might seem like a smart way to help family or plan your estate, but the reality is far more complex. From tax liabilities like Inheritance Tax and Capital Gains Tax to legal risks and potential care cost implications, this strategy can come with unexpected consequences. Explore the key issues and discover whether a fast, hassle-free cash sale might be a better solution for your situation.
What is the market value concept?
Even if you decide to sell your house for £1, HMRC is interested in the market value of the property at the time of the transfer. The market value is what the property could reasonably fetch if sold on the open market. In effect, by selling your house for far less than its market value, you are making a ‘gift’ of the difference between the sale price (£1) and the property’s true market value. So if your home is worth £300,000, and you sell it for £1, HMRC will view this as a gift of £299,999.Implications of Inheritance Tax (IHT)
Gifting a property to your child for £1 doesn’t allow you to side-step inheritance tax. If you gift your home and then survive for 7 years, the value of the gift falls outside of your estate for IHT purposes. However, if you die within 7 years of making the gift, it could be subject to IHT under the ‘Potentially Exempt Transfer’ (PET) rules. Moreover, there is an additional complication: If you continue to live in the property after gifting it to your child, this becomes a ‘Gift with Reservation of Benefit’ (GROB). This means that, even if you survive for 7 years, HMRC could still count the property within your estate when calculating IHT liability, unless you pay a market rent to your child for living there after the transfer.Capital Gains Tax (CGT)
Capital Gains Tax can also apply when gifting a property to a child, even if no money changes hands. If the property is your main residence (your principal residence), it is generally exempt from CGT. But if it’s a second home, a rental property, or you’ve not lived there for the entire period of ownership, there could be a CGT liability when you transfer ownership to your child. Importantly, CGT is calculated based on the market value of the property, not the sale price. This means that even though you sold the house for £1, you may owe CGT as if you sold it for full market value.Stamp Duty Land Tax (SDLT)
Even the buyer, in this case, your son and daughter, needs to consider Stamp Duty Land Tax (SDLT). When a property is transferred between family members, SDLT is still assessed on the market value of the property if there is an outstanding mortgage. If no mortgage exists, SDLT is typically not due if no actual payment is given. However, if your child takes on an existing mortgage, SDLT may be triggered on the amount of that mortgage debt.Other Legal Considerations
When you sell your house for £1 isn’t just about the transfer price. The legal formalities still apply, including: Conveyancing: The sale must go through a solicitor or conveyancer who will lodge the transfer with HM Land Registry. Mortgage provider consent: If there is an existing mortgage on the property, you must obtain consent from the mortgage provider before you can sell or transfer the house. Alternatively, the lender must consent to your child taking over the loan. Declaration of solvency: If you later fall into financial difficulties or bankruptcy, the transaction could be challenged as an attempt to deprive creditors of assets. Especially if the transfer was made within a certain timeframe before insolvency. Solvency: The possession of assets in excess of liabilities; the ability to pay one’s debts.
Why might parents want to sell a home for £1?
The motivation behind selling a house to a child for a lower amount often stems from:- Helping the children onto the property ladder
- Estate planning and IHT mitigation
- Avoiding future care home fees by reducing the value of their estate
- Ensuring the property ‘stays in the family’
The risk of ‘Deprivation of Assets’
Some parents may think that selling a house to a child at a low price is a way to reduce their assets and avoid care home fees later in life. However, local authorities can treat this as ‘deliberate deprivation of assets. If the council decides you deliberately reduced your wealth to avoid paying care costs, they can still assess you as if you owned the property, even if legal ownership has passed to your child.Alternatives to selling your house for £1
Rather than selling your house to your son or daughter for £1, other options may achieve your goals more effectively, including:- Outright gifting with independent legal advice and a clear understanding of tax rules
- Setting up a trust to hold the property
- Joint ownership arrangements
- Leaving the property in your will, which may attract inheritance tax reliefs, such as the main residence nil-rate band
What is the process of selling my house to my child?
If you decide to proceed, here’s a typical overview of the process:
- Get an independent valuation of the property to understand its true market value.
- Instruct solicitors or conveyancers. Both you and your child should ideally have independent legal representation to avoid potential challenges later.
- Complete conveyancing procedures. Including the Land Registry paperwork and ensuring any mortgage is settled or transferred.
- Consider a formal declaration of gift: This can clarify your intention and provide an audit trail for tax purposes.
- Inform HMRC as needed, particularly for CGT reporting.
Is it worth selling for £1?
In summary:
Yes, you can sell your house to your son or daughter for £1, but it is treated as a gift for tax purposes.- Inheritance tax, Capital Gains Tax, and potentially Stamp Duty could still apply based on the property’s market value.
- The legal process is the same as any other sale, including conveyancing and potential mortgage issues.
- There are risks around deliberate deprivation of assets if care costs are in question.
Conclusion
To sell your house for £1 might sound appealing, a simple way to help your children and manage your estate, but the reality is far from simple. The tax and legal implications can be significant, and what seems like a generous gift today could result in unexpected costs and complexities later. Before making any decision, it’s essential to get professional advice from solicitors and financial planners experienced in property transfers and estate planning. They can help you understand all the options, the risks, and how best to achieve your family and financial goals while staying compliant with UK law.Thinking of selling?
If you’re exploring ways to sell your house, whether to family or on the open market, why not consider a fast, hassle free sale with We Buy Any House? At We Buy Any House, we offer:- Quick and guaranteed sales, often completing in as little as 7 days
- No estate agent or legal costs
- A simple, transparent process
- Support at every step from our friendly, experienced team