Can I Sell My House to My Son for £1?

Yes, it’s absolutely possible (and legal) to sell your property to your child for £1 (or any other price you choose), also known as “gifting”.

In this article, we run through the best way to undertake this type of transaction, how to avoid the key risks and other potential issues.

Why Would I Sell My House to my Child for £1?

Buying property is very different nowadays. With house prices increasing significantly, it’s hard to afford the deposit, let alone be eligible for a mortgage. Gifted property can be a way onto the property ladder.

Another motive may be a property’s need for extensive refurbishment. Parents may choose to hand it over to their children as a project or investment to supplement their incomes instead of directly giving the child money.

You’ll also avoid the costs and hassles of using an estate agent or auctioneer. There are tax benefits too, provided the transaction is undertaken legally and not as a means of evasion or avoidance.

Would it Not Be Better to Help My Child with a House Deposit?

It can make sense to seek out another home for your son or daughter to buy to access the property ladder.

This helps teach the discipline of homeownership. However, you would need to trust them to behave responsibly.

It also means that you can rent out your own property, live in it yourself or make plans to pass it on at a later date.

Remember to check whether the mortgage lender accepts gifted deposits (i.e. those that are not sourced by your son or daughter).

What Do I Need to Do to Sell My House to My Son for £1?

You’ll need to instruct a conveyancing solicitor to administer the deed transfer.

Legally, you are not selling the property directly and the transaction is classed as a gift. The £1 is a token price (“consideration” in legal terms).

The solicitor will still need to undertake the standard conveyancing processes. Exchange of contracts and completion will also happen in the same way as a conventional sale.

Overall, things usually move much quicker relative to conventional home sales as there are usually no searches to wait for and only one line of communication.

Would it Not Make More Sense to Wait Until I Pass Away?

Under this circumstance, your son or daughter will be inheriting the property rather than receiving it as a gift.

With average property prices doubling every 10-15 years, your child may have a hefty inheritance tax bill to pay when the time comes – up to 40% on the property’s value – as well as dealing with the probate process, which is rarely smooth.

With a gift, however, the value is fixed at the time of transfer.

There may also be changes in tax laws that could work out in your child’s favour down the line.

Exactly how much tax/what costs are there When Selling My House for £1

Mortgage Redemption Costs

If you don’t own the property outright, any mortgage or loans will need to be paid in full before the house can be transferred.

Rather than selling for £1, you may choose to sell for the amount owed (provided your child can afford it).

If you are exiting the mortgage before the end of the term, there will be an early redemption (exit) charge.

Your solicitor will be able to help with this part of the conveyancing process and communicate directly with the mortgage lender.

Your younger family member may be able to take out a new mortgage – but that will be separate from this initial transaction.

Legal Fees

Solicitors will generally charge their standard conveyancing fees (i.e. for a conventional residential property sale).

However, it may be worth negotiating the price down as the workload is arguably not as heavy.

Capital Gains Tax (CGT)

If the property has been your Principal Private Residence (PPR), there will be no Capital Gains Tax (CGT) to pay.

This tax is based on the rise in property value between when you initially bought it and the point at which you transfer ownership.

You can also deduct capital improvement costs, the stamp duty paid when initially purchased, legal and estate agency fees. There is also a CGT allowance that offsets some of your liability (which doubles if you’ve owned the property with a spouse).

If you have sold a second property to pay the mortgage on the property being transferred to your child, you would still likely need to pay CGT.

The amount of CGT will vary according to what tax bracket you are in.

Stamp Duty Land Tax (SDLT)

Provided there is no mortgage, there will be no SDLT to pay on gifts of property, provided there is no mortgage against it.

If there is a mortgage, the standard rates will apply if the level of borrowing is above the stamp duty thresholds.

Stamp Duty is also payable if your son or daughter will rent out the gifted property or use it as a second home.

Inheritance Tax (IHT)

A gift of property will be exempt from inheritance tax if you were to pass away within 7 years. This will taper in line with how much time there is left within the 7 years.

If your son or daughter plans to rent the property back to you for free (or under market value) after the transfer, there will be an inheritance tax liability when you pass away. This is because the law deems this a gift with the “reservation of benefit”. You should therefore pay the full market rent should you plan to live in the property (HMRC will request proof).

Income Tax

There will be income tax implications, if your child plans to rent the property out.

Should your child decide to take out a personal buy-to-let mortgage, he/she should also be aware of Section 24 of Finance Act 2015 which effectively limits the amount of finance that’s tax deductible (although there is a 20% credit).

Your son or daughter will also have to pay Capital Gains Tax should they wish to sell at a later date.

Corporation Tax

There will be different tax implications if the property is being sold from a Limited company or other corporate entity.

Accountancy Fees

For the above reasons, it’s worth speaking to a suitably qualified tax advisor and/or accountant before making any decisions. Remember that any evidence of tax evasion or avoidance is effectively a crime.

A Note on Care Home Fees…

Some property owners we speak to ask “can I gift the house to my child as a means of avoiding “self funding” a care home by extracting equity”?

This is because care home fees will be due in full if you own over £23,250 in assets.

Generally, any such plans are unlikely to be successful unless undertaken in good time before you knew you would ever have to be admitted into a care home. In other words, it comes down to intent and whether you deliberately planned to “deprive” your assets.

After the £1 sale, even though the Deeds are in your child’s name, the local authority (who would otherwise fund your care) may still make you liable based on the value of the gifted property. The sale is therefore disregarded.

Local authorities can also use “deferred payment agreements” to claim the care home fees back after you pass away and the house is sold.

Risks to Be Aware of When Selling a House This Way

So, can I sell my house to my son for £1? While it can make a lot of sense, it’s important to understand the potential downsides.

For instance, if your child decides that property ownership is not for him/her, they may decide to sell – which comes with a range of costs involved and practical challenges that need to be anticipated.

Or is the plan for you to move in as a tenant? Most children would never evict a parent, but it may be worth protecting yourself should the worse happen. Indeed, although it has become more challenging to evict tenants, the courts will still protect the legal owner should he/she wish to vacate.

Then there’s marriage or civil partnership. Should your married son/daughter get divorced, the sale proceeds will get divided. This may be a bitter pill to swallow, especially if you witness the situation unravel down the line.

There is also a risk of the property being repossessed due to non repayment of the mortgage.

Finally, should you be on the verge of bankruptcy and thinking of selling this way to reallocate the asset, the receivers could order to reverse the transaction, as it’s a deliberate attempt to keep the property in the family as opposed to selling to clear debts.

Contact Property Solvers

Should you need any advice selling or auctioning your property, please contact our team 24/7. We’re always available to help.