Sometimes people choose to skip the property advertisements and viewings, and commit to selling their home to a family member. While you know the buyer a whole lot better than if you were to sell your house in the traditional way on the open market, upset can still arise so it’s important to know what you’re getting into.
Whether you’re hoping to sell part of your home to your family, the whole property, or sell below market value, we’ve brought together all you need to know. Find out how to sell your house to a family member with this Stanfords guide.
Why do some people sell their property to a family member?
People choose to sell their property to family members for a range of different reasons, and each is personal to the individual. However, some common themes can be noted from the reasons people sell their home to family.
1. Help children get on the property ladder
Given the financial climate, it’s no surprise that many people are finding it increasingly difficult to make their way onto the property ladder. For a lot of people, the prospect of owning a house feels completely out of reach.
Some parents choose to sell their home to their child or children in order to help them take this first step onto the property ladder. Without having to navigate house viewings and with the potential of getting a property at a reduced cost, this is a great way for young people to get on the property ladder.
It’s important to note that this method of helping someone get on the property ladder only works if a family member is in the financial position to sell their property to them and is keen to do so.
2. Keep the property in the family
Another reason why some people choose to sell their house to family in the UK is to ensure that the property remains in the family for generations to come. The original owners may feel the need to downsize but still would like the property to remain in the family, and can’t afford to have multiple properties.
This would provide the original owners with the funds they need to purchase a different property, while ensuring that the generations to come still have access to the property.
3. Avoid paying certain selling fees
Some people choose to sell their home to family in the hopes of avoiding certain extra costs when it comes to selling a property. This includes things such as listings, advertising, and photography – the buyer will already likely know the property inside out, literally!
However, choosing experienced estate agents with unrivalled property marketing means that these extras some people worry about aren’t added on, they’re included.
4. Provide financial help to a family member
Others choose to sell their home to a family member at a reduced cost than its real value to help them out financially. The buyer is financially better off as a result – although the seller will be losing out.
Selling a house to a family member in the UK
Now that we’ve established why some people choose to sell their property to a family member, we need to consider the actual process.
How to sell your house to a family member
Even when selling your property to a family member, there are still some fundamentals that you shouldn’t skip over. In order to make sure the relationship between family members stays positive, it’s important to follow the proper processes.
While you won’t need to market your house to prospective buyers, using an estate agent to help push through the sale of your property to a family member is a great way of staying on top of everything. They will be able to ensure that all the correct paperwork has been filled in and all the details have been ironed out before the sale goes through.
Depending on circumstances, capital gains tax may apply to the seller. This is the profit made by disposing of an asset that has increased in value. Private residence relief could exempt you from paying capital gains tax, providing the criteria is met.
Selling part of your house to a family member in the UK
Some people choose to sell part of their home to a family member rather than the whole property. Here, things can get a little tricky so it is best to seek out professional advice from an experienced estate agent.
Your options include gifting part of the property where a ‘deed of gift’ document will be needed, or selling part of your home to a family member. It’s important to note that if you have a mortgage, you will need to get lender approval before being able to sell part of your property.
Can you sell a house below market value to family?
Yes, it is possible to sell your property below market value to a family member. Technically, you can sell your home for whatever price you choose to, but things can get complicated with tax if you sell it for significantly under the market value. If you wanted to sell your house to a family member for £1, you theoretically could.
However, if you sell your property to a family member for too little, the buyer could be required to pay tax on the gift – with the gift being the difference between what they pay and the market value. In the UK, this would be inheritance tax. In the UK, the threshold for tax-free gift giving is £325,000. When you have given away more than this amount, inheritance tax may be charged to the recipient. If you own your own home, your tax free gift to your children of property can increase to £500,000.
This all depends on the circumstances of the sale, and if the ‘seven year rule’ can be applied. If you live more than seven years after giving a gift, then no inheritance tax is due to be paid by the recipient. If you die within seven years of giving the gift, then varying rates of tax are charged depending on how long after giving the gift you pass away – this is known as taper relief.
What to consider before selling your house to a family member
It’s incredibly important to properly consider whether selling your house to a family member is the best action for all involved before signing on the dotted line.
Family relations can easily become strained if things don’t go according to plan with the sale or if both parties do not agree on the sale price. Also, if the buyer ends up being hit with a hefty tax bill as a result of the original owner selling the property under market value, the relationship can become difficult to manage.
As well as the prospect of damaging your family relationships, there are other things you need to consider before selling a house to family. Selling a house massively under value can also bring about trouble with HMRC. It isn’t uncommon for HMRC to suspect family to family house sales as being fraudulent.
Taking the advice of a respected estate agent, as well as seeking legal advice, can help to mediate these risks and ensure both parties are happy with the arrangements in place. They will also be able to inform you of everything you need to know before making the sale official.