When it comes to selling a house to a family member, there are various things you must consider for the process to be smooth and successful. By considering all the various elements involved, you can ensure that the process is as smooth and successful as possible.
Selling Your Home to Your Children
If you are considering selling your home or part of your home to one of your children, numerous factors need to be taken into account:
1. Inheritance tax
If you're passing on a property, there is a possibility that you'll need to pay inheritance tax. To deal with this situation, it is advisable to consult a skilled financial advisor.
2. Capital Gains Tax
If you decide to sell the whole house rather than just a share, capital gains tax might also come into effect due to any increase in the value of the property since it was purchased.
However, various circumstances can be capital gains tax may or may not need to be paid:
- If you sell your primary residence to your children, you will not have to pay capital gains tax as long as it has been your primary residence since the time of purchase.
- If you previously rented out the property, you may only be eligible for partial Private Residence Relief, and you will owe capital gains tax for the duration that the property was rented out.
- If you own more than one property, for example, if you have a primary residence and a buy-to-let property, and sell the buy-to-let property to your child, you will owe capital gains tax on the difference between the purchase price and the selling price.
3. Stamp Duty
Additionally, stamp duty should be taken into account when transferring the ownership of a property, as your children may still have to pay this depending on their circumstances and if they're any recent changes to the threshold.
If you have a mortgage on your home and you plan to sell it to your children at a price lower than its market value, you must set the selling price to at least match the amount of the outstanding mortgage.
Selling to Family Below Market Value
If you decide to sell your home or part of your home at less than market value to one of your children then this needs to be carefully considered as there are various taxes applicable such as capital gains tax and stamp duty. Additionally, if the recipient takes out a mortgage, they should seek advice from a professional lender to make sure they can afford it and understand any financial implications.
Giving Your Profits or a Property to Your Children
If you are selling your home but giving the profits directly to one of your children, then there may be other taxes applicable such as income tax which must also be taken into account, depending on your particular circumstances.
In addition, the money would be classed as a gift for inheritance tax purposes, in the same way gifting the property would be. Therefore, it is highly recommended that you get advice from a qualified financial advisor before proceeding with this option.
It is important to remember that selling a house to a family member involves more than just preparing the paperwork and transferring ownership of the property. There are various taxes, legalities and other things to consider when making such an important decision.
So, if you are thinking of selling your home or part of it, consult a professional financial advisor and estate agent to make sure everything goes according to plan, and book a free valuation with Hunters to get started.