Family buying your house

Nutty_Death

Nutty_Death

Nutty_Death

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5 Apr 2004
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1,215
This is a tricky one.

If a family member was to buy your house from you in full with money that the parent had given them or the parent bought it and gifted the house to them. Essentially as a cash purchase not requiring a mortgage for the buyer, with the seller having a mortgage, which is a 1/5 of the sale price.

What would be the steps in doing this be? Legal things to look out for? expected taxes and ways of trying to reduce them legally? Official people to get involved and perhaps financial advisors?
 
Are they paying a representative market price?
If so, it's the same as any other sale iirc.

If not, it can become difficult.

Speak to a financial advisor I would say. There are lots of parts that will need to be carried out by a solicitor, and will have to he done properly to be legal.
 
Malt_Vinegar said:
Are they paying a representative market price?
If so, it's the same as any other sale iirc.

If not, it can become difficult.

Speak to a financial advisor I would say. There are lots of parts that will need to be carried out by a solicitor, and will have to he done properly to be legal.
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Yes they are.
I've been wondering whether there's any legal ways to save taxes, such as transfering ownership. Which presumably couldn't be done without paying off the mortgage first and incurring some early repayment fees. Also I'm not sure how much money you can gift or what happens when a sibling gifts a house rather than parent.
 
We've been through this recently with my girlfriend's family. I wasn't too closely involved so won't make comments about gifting Vs buying. But we did learn that in terms of sale price, you can justifiably sell it with a third discounted off the market rate. In our case we had it valued by two separate parties, took 30% off and that's the price being paid from family to the grandmother.

Stamp duty will apply but for us, the purchaser is a first-time buyer and so the sale is exempt from stamp duty.
 
Thanks, that's good to know. I do wonder whether that could affect the future value of the house but I guess future valuations would take into consideration surrounding houses.

It seems like you don't pay stamp duty on a transfer of ownership if you own all the house.

At normal market value, stamp duty works out about the same as paying off the mortgage early. So it seems taking 30% off the house price and therefore reducing stamp duty is the most cost effective method.
 
stockhausen said:
Really?

Who gave you this advice?
On what legislation was it based?
Have HMRC agreed to this 30% discount?
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It's not exactly a discount. When you sell a house, you agree on a price .The price may be high if there are competing buyers, or lower if the sellers are keen to sell quick. Obviously they won't allow you to sell your house to your children for £1 so it seems this is the agreed reasonable limit. Current market value by fair valuation less 30%. I didn't consult a solicitor but the main family member handling things did ask several professionals for advice, back when we were figuring out what was and wasn't permissible.
 
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LuckyBenski said:
. . . I didn't consult a solicitor but the main family member handling things did ask several professionals for advice, back when we were figuring out what was and wasn't permissible.
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You may not run into "issues" with HMRC.

However, if they haven't specifically agreed to this "discount", you may in due course find that it will come back to bite you - perhaps on the death of your Girlfriend's Grandmother.
 
So my mum couldn’t sell her £400k house to my brother for £230k? That’s just wrong. You should be able to sell your property to who you like, for what you like.
 
robfosters said:
So my mum couldn’t sell her £400k house to my brother for £230k? That’s just wrong. You should be able to sell your property to who you like, for what you like.
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No, because you're effectively "gifting" the remaining 170k value of the house without paying the associated inheritance tax etc. It's a tax dodge and quite rightly dealt with as such my HMRC.
 
LuckyBenski said:
It's not exactly a discount. When you sell a house, you agree on a price .The price may be high if there are competing buyers, or lower if the sellers are keen to sell quick. Obviously they won't allow you to sell your house to your children for £1 so it seems this is the agreed reasonable limit. Current market value by fair valuation less 30%. I didn't consult a solicitor but the main family member handling things did ask several professionals for advice, back when we were figuring out what was and wasn't permissible.
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I have no idea legally. But to me that just sounds like HMRC probably won't notice a 30% discount rather than they agree it's legal. Hopefully you'll get away with it. But... slight risk you might not.

Personally I disagree with inheritence tax because it's double taxation. But that's beside the point.
 
I might not be understanding this correctly, but could you not just update the deed with the name of the new owner, and then transfer funds afterward via the usual means? Therefore avoiding IH tax?
 
I don’t think IHT would affect my example anyway as I believe you can leave an estate worth up to £475k to your children without IHT now.
 
robfosters said:
So my mum couldn’t sell her £400k house to my brother for £230k? That’s just wrong. You should be able to sell your property to who you like, for what you like.
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You may think that it is wrong but it may still be subject to Inheritance Tax.

amigafan2003 said:
No, because you're effectively "gifting" the remaining 170k value of the house without paying the associated inheritance tax etc. It's a tax dodge and quite rightly dealt with as such my HMRC.
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I was rather under the impression that there was a limit on "gifts", both in terms of value (£3,000 pa) and timing (7 years)? Otherwise why would anyone's Estate ever be subject to Inheritance Tax?

Unfortunately, all this is just a question of curiosity :(
 
I spoke to a solicitor recently about the idea of buying a house for below value from a family member.
It really isn't well defined, and therefore his advice had to be vague. But basically HMRC might take interest in it, and therefore (for instance) might demand that you pay stamp duty on the market value rather than what you paid. Also IHT might consider the difference between payment and value as inheritance if the family member died within 7 years.

I was coming at it from the opposite direction to OP. I was concerned about what we could do to make sure it all was completely above board. And the answer really was that no matter what you did, there was a chance that it would be perceived as trying to get away with something a bit dodgy.
 
bazzabear said:
I spoke to a solicitor recently about the idea of buying a house for below value from a family member.
It really isn't well defined, and therefore his advice had to be vague. But basically HMRC might take interest in it, and therefore (for instance) might demand that you pay stamp duty on the market value rather than what you paid. Also IHT might consider the difference between payment and value as inheritance if the family member died within 7 years.

I was coming at it from the opposite direction to OP. I was concerned about what we could do to make sure it all was completely above board. And the answer really was that no matter what you did, there was a chance that it would be perceived as trying to get away with something a bit dodgy.
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Mercenary Keyboard Warrior said:
If your not paying market value and its intra family it will be considered a sale at undervalue and not at arms length.

https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg14540
https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg14560

In this situation you are still liable for the tax on the market value.
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Those two posts seem to make more sense. The 30% figure just seems to be a number plucked from the air, based on what the HMRC would (probably) not notice.

One further question - For what (type of) tax are you still liable (at the market value) in this (intra family undervalue) situation?
 
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