It’s absolutely possible to arrange the transfer of property to a family member. However, it’s important to thoroughly understand the process and its implications – financial and otherwise – before committing to this.
As We Buy Any House specialists, we regularly speak with homeowners thinking about moving forward with such an undertaking (rather than sell).
In this article, we examine the ins and outs of property transfer to family members. We’ll also address the duties and responsibilities involved in the transfer of property as a gift.
How Do I Transfer Property to a Family Member?
In order to transfer property to a family member as a gift, you’ll need to execute a “Deed of Gift”. This is also known as a “Transfer of Gift”.
This legal process ends with the family member(s) classified as the property’s legal proprietors. The new owners’ names will then appear on the Land Registry.
The main action involved in the transfer of property as a gift is the completion of a “TR1”. This is a “transfer of whole ownership” form. If you’re only transferring part of a property, you’ll need to fill out a “TP1” instead.
You should also fill in an “AP1” form, which serves to change your property’s details in the Land Registry.
If you’re not using a conveyancer, you should also complete an “ID1” form, which enables you to confirm your identity.
The above forms, along with the required fee for the process should then be sent to the Land Registry.
If you have a mortgage on the property, you’ll need to receive permission from the lender before you can begin the transfer process.
How Long Does it Take to Transfer Ownership of a Property?
The entire transfer of property ownership process usually takes between four and six weeks.
However, this often depends on the speed at which your conveyancer works (if you are using one).
Much will also depend on mortgage providers and other third parties completing their duties within good time.
Is Gifting Property to Family Members a Good Idea?
UK law stipulates that Inheritance Tax must be paid upon the receipt of property worth over a certain value when bequeathed in a will. This value is greater for the transfer of property from parent to child or grandparent to grandchild.
The transfer of the property may not be worth it if its value falls below the stipulated threshold.
If the proprietor of a property transfers its ownership more than seven years prior to their death, Inheritance Tax (IHT) will not usually be payable on this asset.
For example, upon the transfer of property after the death of a father or mother, or within seven years before that person’s death, IHT is payable if the property is valued above the accepted threshold.
This could have been avoided if the was a transfer of the property before the start of the seven year “window”.
There should be no “chargeable consideration” connected with the transfer in order for IHT to be avoided. This means that the recipients of the property should give the donor nothing in return.
The donor may rent the property from its new owners, but this should be at market rental rate – otherwise the donor will be deemed to be benefiting from the property, which counts as a chargeable consideration.
We’ve also come across scenarios where children have bought their parents’ house and then rented it back for free. Here, there are Capital Gains and Stamp Duty Land Tax as well as other practical considerations to take on board.
Giving Property as a Gift: Requirements and Duties
There are a number of requirements in order for the correct execution of a Deed of Gift.
Firstly, there must be confirmation that the current owner of the property is acting of their own free will.
The owner must also be sound mind (there must not be any duress or pressure to transfer). They may also need to seek specialist legal advice and settle any debts currently connected to the property.
Of course, the donor should also be listed as the legal proprietor of the property. Only then, can they transfer it to another person.
There will be a Capital Gains Tax (CGT) charge on a gifted property. The amount will equate to the difference between the value of the property when the donor first bought it and its value at the time of the transfer.
This amount will be smaller than the potential IHT sum to be paid for property that is valued above the threshold.
It is worth reiterating that IHT can only be avoided if the donor survives for more than seven years following the completion of the process.
Receiving Property as a Gift: Requirements and Duties
If another individual is planning to transfer the ownership of their property to you, you may decide to hire a specialist solicitor to assist you with the process.
You will receive a copy of the TR1 form (mentioned above) to complete.
It’s important to note that if the recipient of the property offers any way for the “donor” to financially benefit from the transfer, they may be liable to pay an amount of Stamp Duty Land Tax.
Do I Need a Solicitor to Transfer Ownership of a Property?
You don’t necessarily need legal assistance when arranging the transfer of property as a gift, as you can find all required Land Registry forms via gov.uk.
The assistance of a legal professional can be extremely valuable, particularly when it comes to the wording of any transfer agreement. Although it may seem expensive, a good solicitor can help you avoid falling foul of certain tax legislation.
Other Types of Property Transfer
Instead of directly transferring property without money changing hands at all, the owner might decide on a “concessionary purchase”. This involves the sale of the property to designated individuals at a heavily discounted rate.
There is also the potential for a “transfer of equity”. This is a kind of partial transfer, where two individuals share property ownership. Transfers of equity happen between a newly married couple, for example.
It also allows for the removal of one of a property’s owners from its title. This may occur as a part of a divorce settlement, for example.
Note that if you’re buying a property with the aim of putting it into your child’s name, there are other questions to consider. Here, furthermore, there is a notable difference between purchasing and transferring – and therefore different legal and taxation implications.
The above information should help to clarify the process that must be undertaken throughout a transfer of ownership.
For other information relating to the sale, purchase or management of property, the team at Property Solvers can help.
Whether you’re looking for a free up-front cash offer for your house, or you’re on the lookout for local property auctions, simply get in touch with us today.