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Read Full Bio >One of the most valuable steps you can take on a family member’s behalf is to invest in their financial stability. That is why many homeowners with children ask the question “can I sell my house and give the money to my son / daughter / child / grandchild?”
Whether you’re planning to downsize your current residence and feel that you could easily part with a portion of the profit, or you have a second home that you no longer need, it’s easy to see how the proceeds from the sale could make a huge difference to your child’s future.
So – is it possible? Can you give money from a home sale to a family member? We explore this question in detail below.
I Have Received Money from the Sale of a House: Can I Give it to a Family Member?
Once you receive the funds from a sale, that money is yours to use precisely as you wish.
However, it is worth noting that, if you plan to hand over the funds without any requirement for future repayment, the amount will be considered a “gift” under UK law.
As such, the money may be subject to Inheritance Tax.
What is Inheritance Tax?
Gifts that are valued above a certain amount are subject to taxation. This is known as Inheritance Tax or IHT, or informally as “death tax”.
Inheritance Tax is subject to a specific yearly “allowance” or threshold. Gifts that are valued below this threshold are exempt from taxation. At the time of writing (May 2022), the maximum annual IHT allowance is £3000.
If you have any amount of IHT exemption left over, it’s worth noting that you may carry the unused amount over to the next tax year. However, you can only do this once.
It is worth noting that inheritance tax is only payable if your estate is worth over £325,000.
Any tax due is usually covered by your estate. However, if you have given gifts with a total value amounting to over £325,000 within the seven years before your death, the recipients of any additional gifts given will be liable to pay.
You can find out further details about Inheritance Tax at:
https://springbokproperties.co.uk/blog/what-happens-when-you-inherit-a-house-from-parents
How to Avoid IHT
To avoid the complexities and costs inherent in IHT, you may wonder “can I sell my house to my son for £1 in the UK?”.
Again, the answer is yes. However, if you sell property for below its fair market value, the difference will still be considered a “gift”. This means that it is still subject to Inheritance Tax – and the property will likely also incur Capital Gains charges.
To learn more about this, you can check out another of our guides: “Can I Sell My House for £1 to a Family Member?”
An alternative approach is to use trusts to avoid IHT. If you pay the money from your property sale into a trust fund, the amount no longer officially belongs to you.
This means that, according to the terms of the trust, the recipient can withdraw and utilise the money without the need for IHT. However, there are additional taxes payable on trusts.
What are the Fees Associated with Trust Funds?
Most commonly, the charges you will have to pay when using a trust to give money to a third party include:
- Entry fees
- Ten-year charges
- Exit fees
Simply put, you’ll be charged an amount to transfer money into the trust.
You’ll also need to pay an amount every decade following the opening of the trust, with the funds due the day before each ten-year anniversary.
This amount is calculated based on the net value of the contents of the trust, but is only payable if those contents are worth more than the current IHT threshold.
Finally, an exit charge will be applied when any other trustee appointed to the trust pays an amount from the trust to another party. This amount is calculated according to the value of the funds being paid out.
Depending on the type of trust you choose, you may also be required to pay management fees.
Alternative Approaches
To save on tax and fees, you may decide to retain the funds from the sale of your property yourself, then pay an amount below the legal IHT threshold to your chosen family member on a yearly basis.
Any Questions?
The above guide to giving a monetary gift to a family member after selling your property should help you to decide on the best course of action.
However, if you wish to know more about how to sell your home and make use of the resulting funds in a way that is speedy, simple and stress free, just get in touch with us today. We can offer you a free valuation and cash offer on any property.
