With the rising cost of living in the UK, many parents are worried about their children’s financial future. That’s why if you are in a position to do so, selling or gifting a property to your children is a great way to help them get onto the property ladder.
If you want to know more, then this article is for you.
We have broken the article into two sections, the first relating to selling and the second gifting.
Am I legally allowed to sell my property to my children?
Yes. You can sell your property to whomever you wish, and your children are no exception to this rule. However, this is not straightforward and there are some tax implications as a result.
What are the tax implications of selling my property to my children?
There are two types of taxes that you will need to think about if you are considering selling your property to your children. These are inheritance tax and capital gains tax.
Inheritance tax: If you are selling a property for less than it is worth, the difference in price is automatically considered a gift. Depending on a few things, this gift may be subject to inheritance tax.
Some situations where inheritance tax would be charged are:
- If your estate is worth more than £325,000 (or £650,000 if you are in a marriage or civil partnership).
- If you pass away within seven years of making the gift.
Capital gains tax:
On the other hand, if you sell a property for more than you originally paid for it, you will be charged capital gains tax. The exception to this rule is if the property is your main home; in this case, you would not need to pay capital gains tax.
If you are selling the property for more than it is worth, and you used to rent out the property in the past, you would still pay capital gains tax. However, you would qualify for something called Private Residence Relief. This means that you will not be charged the full amount of capital gains tax, but rather an amount that is proportional to the period of time that the property was rented out.
What happens if I have a mortgage and I want to sell my property to my children?
Even if you still have a mortgage on the property, you can sell it to your children. However, you would need to sell it at a minimum for the same amount that you have left to pay.
Your children would only have to pay stamp duty on the property if:
- They are a first-time buyer and the value of the property being sold exceeds £425,000.
- They have owned property before, and the value of the property being sold exceeds £250,000.
- They currently own another property; in which case they would pay an additional 3% stamp duty on the additional property.
What about if I want to sell my property and give the money to my children?
You can do this if you wish. If the total value of the property is £325,000 or under, your children will not have to pay inheritance tax. That is, assuming you live for at least seven years after you make the gift.
Any amounts above £325,000 are subject to inheritance tax.
Can I gift my property to my children?
Yes, you can. However, as with selling a property, certain tax rules apply.
What are the tax implications of gifting my property to my children?
Your children may not have to pay inheritance tax if the total value of your estate is £325,000 or less. If you are in a marriage or civil partnership, this threshold increases to £650,000.
However, your children may have to pay inheritance tax in the following circumstances:
- You pass away within seven years of gifting the property.
- You continue to live at the property with your children, after having gifted it to them, without paying rent at the market rate.
What about capital gains tax and stamp duty, in the case of gifting?
You will only need to pay capital gains tax if the property you are gifting is a second home or buy-to-let.
If the property is your main home and has been since you first bought it, you will not need to pay capital gains tax.
As for stamp duty, you will not have to pay this if you own the property and no longer have a mortgage to pay on it. This is because the property is a gift and there is no monetary transaction involved.
However, if you still have a mortgage left to pay, you would have to transfer the mortgage over to your child. If the total value of the estate exceeded the stamp duty threshold, then your child would have to pay stamp duty on the remainder of the mortgage cost.
On this note…
What happens if I have a mortgage and I want to gift my property to my children?
You may be able to gift your property to your children, even if you still have a mortgage. However, this depends entirely on your mortgage lender and if they agree to this.
If they do, the lender would need to carry out checks on your child to ascertain whether they can afford to pay the mortgage repayments each month.
Sourced from Parkers