Can I sell my house for £1 to a family member?

This comes up a lot and so if you’re asking this question, it’s probably because you want to make sure your children get onto the property ladder, or you’d like to find a way to avoid them paying tax.

In this article, we’ll find out more about selling for £1 and the difference between gifting and inheriting.

Is it completely legal to sell my home for £1 to my son or daughter or another family member?

The good news is that yes, it is legal to sell your home to a family member for any price you set. So instead of £1, the sale price could even be 1p.

However, you should keep in mind that although you’re considering selling your home to a child or family member for what is clearly well below market value, there will still be associated costs.

There are a lot of tax implications that come with gifting a property, primarily Capital Gains Tax (known as CGT). Let’s take a look at this and the other taxes that you could incur when selling your home to a member of your family.

Capital Gains Tax
If the property you’re looking to gift was bought 10 years ago (or more) it’s likely you’ll have to pay some form of Capital Gains Tax. This is because if a property has significantly increased in value by the time you come to sell it, CGT will need to be paid. CGT costs can vary from a few hundred pounds right up to tens of thousands of pounds. It’s also worth remembering that any capital gains made after the transfer of ownership (such as rental income) will also incur CGT. What this means is that if you plan to sell your property to your child to enable them to have a second income, CGT will become a regular outgoing.

Inheritance tax and the residence nil rate band
Whilst inheritance tax won’t be paid straight away, gifting a property can mean that inheritance tax will be liable to be paid in the future. It’s all about timing. If you live for seven years after the transfer of ownership, no inheritance tax will be charged.

Upon passing, your estate will go to your beneficiaries as set out in your Will. April 2020 marked the first time that former Chancellor George Osborne’s 2015 ‘£1 million inheritance tax (IHT) free’ statement became fact. The residence IHT nil rate band (RNRB) originally came into effect for deaths on or after 6 April 2017 at a level of £100,000 and was increased every tax year by an additional £25,000 until it reached £175,000 for the 2020/21 tax year. As both the IHT nil rate band and the residence nil rate band have now been frozen until 5 April 2026, the £1 million threshold is set to be around for a little while.

The ability to pass up to £1 million of your estate IHT-free will only be available in certain circumstances and will depend on a number of factors including your marital status, whether or not you have children, the value of your family home, the value of your total estate upon death, who inherits the family home and, ultimately the time of your demise.

In order to qualify for the RNRB, the interest in the family home must be ‘closely inherited’ by your direct lineal descendants. This can include your children (including step-children, adopted children, foster children), and grandchildren.

Interests in the family home left to spouses or civil partners of direct lineal descendants will also potentially qualify for the RNRB. The RNRB is not available to those who do not have children (such as an uncle looking to leave his family home to his nephews and nieces).

Importantly, the RNRB only applies to the net value of your interest in the family home. Where an interest in the family home is subject to (for example), an outstanding mortgage or equity release scheme at the time of your death, this debt will need to be taken into account when calculating the level of the RNRB.

Mortgage costs
Naturally, if the property is mortgage free, these costs won’t apply. However, if there is a mortgage amount outstanding on the property then the sale price of the property must be in excess of that amount. If you wish to sell the property for less than the mortgage amount (such as selling your home for £1), it will mean remortgaging the property. This could incur an early exit fee as well as the cost of a new mortgage arrangement fee.

This issue of mortgage costs links to another point. If you’re trying to sell your house for £1 so as to avoid repaying a mortgage, then think again. Although you can put your house up for sale when you have a loan secured on it, upon completion of the sale, the lender must be repaid in full. Any lender that has a loan secured on your home will have their charges registered in order to prevent you from selling without first repaying their loan.

Stamp duty land tax
Another cost you might incur when trying to sell your house for £1 is stamp duty (known as SDLT). Whether or not you pay SDLT depends on whether the outstanding finance exceeds the current SDLT thresholds. There are different rates of SDLT if:

• you’re a first-time buyer
• you already own a property and you’re buying an additional property
• you’re not a UK resident

HM Revenue and Customs (HMRC) has a Stamp Duty Land Tax calculator on their website to help you work out how much tax (if any) you’ll need to pay.

Income tax
This is another tax that comes into play when you’ve gifted a property to your child. If they are already earning and then collect an income from the property (by becoming a landlord and renting it out), the extra income could push them into the next tax bracket. Also, if the property is rented back to you by your child, income tax would still need to be paid.

The difference between gifting and inheriting

These two terms are not interchangeable. There are actually quite a few differences between inheriting a property and gifting one.

When you inherit a property it’s because someone his passed away, whereas when you’re gifted a property it’s a financial gift. Therefore, a gift will help you to plan for your child’s future. Giving a gift to your child will make it a lot easier to accurately plan the taxes that you’ll be liable to pay when it’s sold. However, your property’s value could climb significantly between now and the time they inherit it; leaving your child with a large tax bill.

Risks to consider when gifting property to your children

Naturally, there are risks that come with selling your property to your offspring for £1. We’ve already mentioned the tax issues that can arise, but there are other considerations to make:

• eviction
• divorce

If you were to fall out with your child after you’ve gifted your property to them, they could sell the house. That’s because after you’ve gifted your home to your child, they will have the legal rights to the property; as anyone would in a conventional house sale. Therefore, they would be permitted to sell the house for any amount and force you to leave.

Also, if your child is married and then separates from their partner, there’s a high risk that the house in which you live will become included in their divorce proceedings. This could result in the courts forcing a sale of the house and then dividing the proceeds between your child and their former spouse. The outcome is that, in a similar way to the other example, you could be evicted when the house is sold.

So, should I sell my house to my child for £1?

There’s no straightforward answer to this question. As with so many things in life, just because you can do something, it doesn’t necessarily mean that you should do it.

The obvious downsides are that you could be evicted through no fault of your own and you could cost them a lot in tax.

It’s also worth keeping in mind that your child may not want to have your home gifted to them. If they’ve moved out of the area, it could be inconvenient for them. And after you’ve passed, it could be that the property holds too many dear memories and upsets them.

The positive side of selling your property to your child for £1 is that you’ll be in control of the sale. Unlike a traditional open market sale, you’ll be able to cut out the whole rigmarole of finding a reliable buyer, you’ll save marketing costs, agent fees, and having to enter into uncomfortable and potentially awkward negotiations. However, this depends on your child wanting your property.

Furthermore, if you’re only selling your home to your child for £1 in order to avoid paying care home fees, you may find it backfires.

That’s because selling a large asset for an obviously knocked down price would be perceived as a ‘deliberate deprivation’ of your assets. As such, the sale would be disregarded, and the property would still be considered to be your asset. The result is that you would remain liable for care fees.

Your local authority – which would otherwise be funding your care – could seek to have the sale overturned and there’s no time limit on them taking action in these matters, so it wouldn’t matter how much time had passed since the sale of your house to your child.

Local authorities are, in certain circumstances, obligated to offer a ‘deferred payment agreement’ when someone owns a property and goes into care. It works like equity release but there are no payments to make and all the charges for your care are paid after your death when the house is sold.

It’s worth mentioning that when you lack available assets to pay for care, it could result in you having a very limited choice over the type of care home you reside in during the final years of your life.

What’s the alternative?

‘Gifting’ or selling your property to your child for £1 is one way of selling your house fast. However, as we’ve mentioned, there are a number of risks (including financial, legal and emotional) that could make this decision complicated.

Something you could do is to downsize and gift the ‘leftover’ equity to your child so that they can use the money as a deposit to get themselves onto the property ladder. A great way to do this is to sell your property to a cash buying company that will buy your property and put the cash into your account within a quick timeframe.

There are lots out there all claiming different qualities, so do your research and read online reviews to make sure you know all about the company with which you’ll be dealing.

Cash buyers work with motivated sellers to push through a fast sale. Their promotional tools are speed and simplicity and their job is to buy properties that are either difficult to sell or whose owners need cash in their bank account very quickly.

What should I know about fast cash sale companies?

To achieve super-fast sales, you as a seller will have to take a hit on your price. Cash buyers typically offer around 70% to 80% of the current market rate; sometimes more. If you’re considering a cash buyer, you must be aware of two important points.

First is that there’s little regulation in this industry so it’s often a haven for scammers. Anyone can set up a business and say they’re a cash buyer. However, that doesn’t mean they have cash or that they’re competent. It’s up to you to do your due diligence and check where their money comes from, what experience they have, the price they offer and everything else.

Secondly, cash buyers are a business and like any business, their aim is to make a profit. Some cash buyers are sniffing around for what they call ‘the three D’s’; these being divorce, death and debt. These three situations generate the most emotion, making sellers more desperate and weaker in negotiations.

A reputable cash buyer can be a life saver in a tough situation and, as long as you have done your due diligence to fully understand the company with which you’re dealing, a cash buyer can produce astounding results for you if you cannot sell your house, don’t want to sell to your child for a nominal £1, or don’t have children to which to sell your property.

How does a cash buying company actually work?

Companies that buy houses will buy your house fast for cash, usually within 30 days, with most completing the sale within 7 days. When you reach out to these house buying companies, they’ll ask for your details and those of the property, after which they’ll have a valuation. Then they’ll give you an offer. If you accept the offer, they will process the payment and you should receive funds in your account within a few days. This means you don’t have to worry about being in a chain or chasing up an estate agent.

Anything else I can do to sell my house?

Yes, there is. You could also consider one of these four options:

Open house day

Holding an ‘open house’ day is usually a one-day event that will create excitement and competition between buyers and could result in a bidding frenzy. Listing just below market value will get viewers through the door and then they’ll push the price above the listed figure; but only if you get enough people through the front door.

Auctions

The digital property auction is a preferred option for many sellers. Almost any property can (and usually does) sell at an auction. Auctions encourage competitive bidding, frequently pushing the price beyond what you wanted (especially if your property’s desirable). And you’re not obliged to accept any bid below your reserve price. Modern auctions are handled online and have flexible deadlines, meaning anyone can bid and have enough time to sort out finance before the exchange and completion deadlines. Property auctions typically come in three forms:

Traditional auctions

The most secure and quickest way to sell is the traditional auction. Before the auction, your agent or solicitor provides a legal pack that includes everything a buyer needs to exchange contracts. The buyers do their due diligence in the run-up to the auction, then they’ll bid and contracts are exchanged when the gavel falls. The buyer is legally bound to buy your property from that moment and usually has 28 days to complete.

Flexible auctions

The modern version of the traditional auction takes a step back from the well-known ‘going, going, gone’ approach we’ve seen on TV programmes. In a flexible auction, contracts aren’t exchanged when the gavel falls. Instead, the winning buyer pays a non-refundable deposit (often called a ‘holding fee’, ‘reservation fee’ or similar) to secure the sale. They get a fixed period (usually 28 days) to exchange contracts and then a second period to complete. Sellers don’t need a legal pack as the buyer has time to do due diligence in the first period.

Although it’s often called a ‘modern’ option, flexible auctions have been around for a long time and have grown in popularity because they work well online. Bidders can be anywhere in the world and the auction is usually held over a period of time (such as 14-21 days) instead of having to be in an auction room on a specific day.

Buyer-friendly auctions

Traditional and modern auctions both put the fee burden on the buyer. Sellers pay nothing because the auction fees and reservation costs all come out of the buyer’s pot. As a model, this can limit the number of interested buyers; especially first-time buyers who discover there are additional payments to make.

Similar to the flexible auction, buyer-friendly auctions go a step further by being extra-flexible on completion times and moving the fees to the seller. While that may sound like it won’t work in your best interest, the flexible deadlines mean most buyers can participate. The ‘zero fee’ for buyers means there’s a greater number of interested people and that will push up your sale price.

Part exchange

Part exchange isn’t a new idea, even in the property sector. In fact, builders have been doing it for years. They take your old house as part-payment on a new build, reducing the price and giving you a guaranteed sale so you’re not stuck in a chain. The advantages of this option of selling your house are numerous. You’ll have a guaranteed buyer, so there’s no fear that your sale is going to fall through. And with no chain, there’s no delay. If your dream-home purchase gets delayed, you can often stay where you are until it’s sorted. If the absolute worst happens and your purchase should somehow fall through, you keep your current property so there’s no worry about being homeless (although this isn’t the outcome you want if you’re trying to sell). Also, because you know exactly how much you’ll be getting for your house, you can act like a cash buyer and push for discounts or tight deadlines on your new home.

Assisted sale

An assisted sale is specifically designed for homeowners who want to sell but whose property needs work and refurbishment. It’s especially good for people with second properties, or if you’re moving into rented accommodation. With an assisted sale, you sell your property to a company for a fixed, guaranteed amount. When the deal has been done, you keep ownership on paper and the company markets the property for sale (using a Power of Attorney).

The difference here is that the company pays the running costs for the property until it sells to a new owner, without it affecting your agreed sale price. They will pay legal and estate agency costs, maintenance and service charges, ground rent, utility bills, insurance and council tax; even your mortgage payments. An assisted sale is just like selling your house in the traditional way but it’s quicker and simpler, and it relieves you of the ongoing burden much faster than even the fastest cash sale. This could be a great benefit to you if you are having trouble selling your house.

Anything else I should know?

If you choose not to go down the route of selling your home to your child for £1 and instead want to use an estate agent or a fast cash sale company, there are review websites (such as allAgents) that collate feedback on estate agents, online agents and fast sale cash buyers. Have a look at the comments that have been left by people who have sold or are selling so as to see how they were treated and if they received a good service (and a good price).

On the topic of price, you’ll also want to find out how each of the different companies reach their valuation for your property. (Hopefully, you’ll have an offer for more than £1!) The amount that a fast sale company will offer to you for your property will depend upon the company. Some of the most reliable cash buying companies will use independent valuations to decide on a figure and show you the evidence that has enabled them to decide on that number.

Meanwhile, other companies may not use such respected methods and instead flatter you with a higher offer on the phone; only to reduce it when they visit your property. It’s essential to ensure that the valuation you get is a ‘no obligation’ valuation; meaning you’re not forced to sell to that company just because they visited and valued it.

Equally, estate agents and online agents may suggest you pitch your property with an asking price at the top end of the valuation and then after being on the market for a while, they’ll suggest you lower the asking price. All of this takes time and holds up your sale.

Ultimately, who you choose to sell your house with will depend upon your timescales and preferences.

Any questions?

We hope this article has helped you to consider the important factors that are at play if you’re thinking about selling your home to your child for £1. As you can see, there are both pros and cons to doing this, and there are pros and cons to the alternative options of selling. Of course, the final decision has to be yours.

If you have any questions about selling your property, whether it’s a flat, a semi-detached, detached or terraced house, and whatever condition it is in at the moment, contact us and we’ll be happy to have a chat with you.