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Selling house cheap to family member

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beorc
beorc Posts: 9 Forumite
in House buying, renting & selling
I have recently been left a house as part of a will. I would like to sell it cheaply to my son at about 75% of current value. For probate it was valued at £100000.
My son wants to get a first mortgage for the property but wants to use the 25% as a deposit for the house. Can I just sign this over to him?
Would this be liable for high tax ie inheritance or Capital gains tax? Would it best to seek financial advice, or legal advice on how to proceed in the best possible way?
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  • clutton_2
    clutton_2 Posts: 11,149 Forumite
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    your son will have to apply for a mortgage in his own name - and that will include the Lender knowing where his deposit came from - so i dont understand ""wants to use the 25% as a deposit for the house " - where will your son get his deposit from if he buys this house from you - at whatever price ?

    you need to talk to an accountant about tax liability - inheriting @ £100k and selling at £75k may be seen as an attempt to evade Capital gains tax
  • beorc
    beorc Posts: 9 Forumite
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    Basically i said I would give him 25% of the property and he would need to buy the other 25% off me. hence if I signed over 25% of the property into his name that would be his deposit.
  • clutton_2
    clutton_2 Posts: 11,149 Forumite
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    you both need legal advice here - and you need to talk to a "whole market mortgage advisor" for your son. if you are jointly going to own a property, then you will need advice as to whether that be as joint tenants or tenants in common or some other arrangement.

    I doubt very much if a Mortgage lenders will accept a "gift of part equity" as a suitable deposit from your son.
  • ADSrox0r
    ADSrox0r Posts: 28 Forumite
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    We were in a similair situation a few years ago. My father wanted to sell me a property valued at 150k for 110k. We simply conveyed this to our solicitor/broker and it was done as a 'gifted equity' mortgage, absolutely no problems at all, no deposit required.
  • 00ec25
    00ec25 Posts: 9,123 Forumite
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    a "gifted deposit" is a common practice, nothing unusual at all about it, many posts already on the subject of mortgages using such deposits

    I assume you inherited the house under your name in the will and so it is now owned by you, as such its your second home and CGT will be charged when you sell it. IHT is less relevant since your son was not a beneficiary of the estate so the sale to him is nothing to do with the estate's IHT position. However, the gifted deposit will count towards the total value of your own estate if you die within the next 7 years. After 7 years the gift is free of any IHT liability on your own estate.

    RE CGT the sale will be classed as a sale to a "connected person" so will be at market value, not what your son paid you in cash for it

    CGT regulations are here , relevant quote below:
    If you sell your property to a ‘connected person’, such as a close relative or a company you control, you use the property's market value. Your husband, wife or civil partner is a connected person. If you're separated for the whole of the year in which you sell or dispose of a property to them, market value applies. However, if you transfer a property to your husband, wife or civil partner and live together at some time in the tax year in which you make the disposal, you usually won't have to pay any Capital Gains Tax on that disposal.
  • beorc
    beorc Posts: 9 Forumite
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    Many thanks for that. That sounds like it is not as bad as I feared. Will the CGT be payable against the whole value of the house or just any market increase?

    Thanks once again.
  • silvercar
    silvercar Posts: 46,960 Ambassador
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    beorc wrote: »
    Many thanks for that. That sounds like it is not as bad as I feared. Will the CGT be payable against the whole value of the house or just any market increase?

    Thanks once again.

    Market increase. Starting point is the valuation for probate, market value is the value of it in current state in current market. Get a RICS valuation based on quick sale - tell the valuer what you are doing so he knows you want a lowish figure. Valuation is an art not a science.

    CGT is payable on the difference, less costs of acquiring and costs of sale. Chargeable at 18% less your CGT allowance (£10,200 or thereabouts) if not used elsewhere. Include it in your tax return for 2009-10 and pay the tax by end Jan 2011.
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  • chucknorris
    chucknorris Posts: 10,786 Forumite
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    edited 6 August 2009 at 9:07AM
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    beorc wrote: »
    I have recently been left a house as part of a will. I would like to sell it cheaply to my son at about 75% of current value. For probate it was valued at £100000.
    My son wants to get a first mortgage for the property but wants to use the 25% as a deposit for the house. Can I just sign this over to him?
    Would this be liable for high tax ie inheritance or Capital gains tax? Would it best to seek financial advice, or legal advice on how to proceed in the best possible way?

    When you fill in the CGT supplement of your tax return, it asks you if there is any connection between you and the buyer. So you should also budget for paying the tax (luckily only 18% now) on the difference between the sold price and the market value. If the house was ever your main residence you will be allowed 'private residential relief' which amounts to the taxable amount being pro-rated down (plus an additional 3 years) and also you get an additional 40k allowance (or it was last year I haven't checked this years yet but I would expect it to be the same, but obviously check this in the IR website)
    Chuck Norris can kill two stones with one birdThe only time Chuck Norris was wrong was when he thought he had made a mistakeChuck Norris puts the "laughter" in "manslaughter".I've started running again, after several injuries had forced me to stop
  • beorc
    beorc Posts: 9 Forumite
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    Big thanks to Silvercar & Chuck for their input here. That has cleared things up even more. I will go and chat with our financial advisor and see what the best way to get through this will be. Plus I will use the same estate agent as used for probate valuation.

    Really impressed with the knowledge out there, much appreciated to those who gave their time to help me.
  • silvercar
    silvercar Posts: 46,960 Ambassador
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    To add to chuck's comment, it has to have been your main residence when you had a financial interest in the property. Living in the home of mum/dad as a child doesn't count, unfortunately.
    I'm a Forum Ambassador on The Coronavirus Boards as well as the housing, mortgages and student money saving boards. I volunteer to help get your forum questions answered and keep the forum running smoothly. Forum Ambassadors are not moderators and don't read every post. If you spot an illegal or inappropriate post then please report it to forumteam@moneysavingexpert.com (it's not part of my role to deal with this). Any views are mine and not the official line of MoneySavingExpert.com.
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