Specialist conveyancing articles to inform you about conveyancing for a house or a flat; whether you already own your own home or if you are buying one. These are free to read and written by specialists in this area.

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Gifting Property to Children

26/04/2020

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gifting property
gifting property
gifting property to children
gifting property to children
gifting property to children
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Gifting property to children or to a spouse is very common however the process can be confusing. There are also tax implications for gifting a property under the full market value. Read more about this here in Capital Gains Tax on Gifted Property for Married Couples and Capital Gains Tax on Gift of Property to Children. In this article we focus on how to gift property to children and other family members. There are 4 ways to gift your property:

    1
    Sale and Purchase at full market value
    2
    Concessionary Sale and Purchase at under market value
    3
    Deed of Gift, also known as a 'Transfer by Way of Gift'
    4
    Transfer of Equity

How do you choose which route to go?
When gift a property to a family member you need to choose the quickest and most affordable way to transfer the property. Here is how you choose:

  • The transfer is for full market value. This is a standard sale and purchase.
  • The transfer is gifted for under market value but for some consideration. This is a standard sale and purchase.
  • The transfer is gifted for no consideration. This is a deed of gift as long as there is no consideration, no mortgage and the transfer is between family.
  • The transfer keeps one of the original owners on the property. This is a transfer of equity.

We run through the legal process for each of the above routes below.

Gift from parents tax and risks?

These are the tax and risk considerations for gifting property to children:

  • Insolvency - if you are made bankrupt within 5 years of gifting the property then the transaction could be voided. Read more here - rules of insolvency on gifts of undervalue property.
  • Inheritance Tax - if you die within 7 years of gifting the property then the gift is taken into account when assessing your inheritance tax position.
  • Capital Gains Tax - if the property isn't your Principle Place of Residence and you are gifting the property to a connected person then you have to pay Capital Gains Tax on the market value of the property, not for the gifted amount. Read more here - Capital Gains Tax on Gift of Property to Children
  • Care home fees avoidance - if you are gifting your property to avoid care home fees then this could be a viewed by the local authority as a deliberate deprivation of asset. Read more here - Gifts to avoid care home fees or the deliberate deprivation of assets
  • You need the money back - a gift is not a loan and you have no legal rights to enforce the repayment of the gifted property. Read more here - you make a loan instead of a gift.


What is the legal process to gift property to your family?

Here are the different routes to gifting property:

    1
    Sale and Purchase
Whether the transaction is for full market value, or under market value, if you are gifting property with a mortgage then you'll need to follow the normal sale and purchase process. Here are the key stages:

  • Seller and buyer get independent solicitors
  • Seller completes standard protocol forms such as fittings and contents forms
  • Buyer gets their mortgage offer
  • Buyer orders searches
  • Exchange and completion

The conveyancing process will take the normal time to get to exchange because you are getting a mortgage and ordering conveyancing searches from the council. Crudely estimated at 4 to 6 weeks if gifting house to child, however if it is a leasehold then this will take much longer as the seller will need to get the leasehold management pack.

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    2
    Deed of Gift/Transfer By Way of Gift
The parties leaving the title are unrepresented , unless they choose to get a solicitor, and the process is as follows:

  • New owners get a solicitor
  • TR1 is drafted and sent to the current and new owners
  • Current owners get their ID1 form verified by a solicitor
  • Completion takes place

The process is completed a lot quicker than a sale and purchase, normally 2 to 3 weeks. The part that can take the longest time is getting thew ID1 verified; especially if the current owner lives overseas. We can get your ID1 form verified so please get in contact if you need any help.

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    3
    Transfer of Equity

Where one or more of the original owners are going to remain on the legal title the transfer can take place as a transfer of equity. The party leaving the title is often unrepresented.

  • New owners and remaining owner use the same solicitor
  • TR1 is drafted and sent to the current and new owners
  • Leaving owner gets their ID1 form verified by a solicitor
  • Completion takes place

A Transfer of Equity takes a similar time to complete as a deed of gift, however can take longer if the property is leasehold or there is a mortgage that requires the lender's consent to add the new parties onto the mortgage.

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gifting property to son

Frequently Asked Questions

What are the risks of gifting property to children?

The child is aiming to take on the property as their own, subject to any restrictive covenants, commercial burdens, environmental defects and financial liabilities that are attached to it. The property may not be able to be sell on the open market, or could be impossible to remortgage, leaving the child with an asset they can do nothing with!

Caveat Emptor , Latin for or ‘buyer beware’, still applies even if the parent has all the best intentions. Without carrying out due diligence such as searches, investigating title and carrying out the checks a prudent home buyer will do, the child could end up in a worse position than had they not been gifted the property at all.

Undue Influence
A third party could declare that the transaction occurred as a result of undue influence, namely through force, fear or an abuse of power. Where a parent and child have not had separate legal representation or followed appropriate channels to demonstrate the transaction was carried out willingly for both parties, the gifting of property can be set aside as if it had not happened in the first place, leaving the child with nothing.

What are the Tax implications when Gifting Property

HMRC have stated that parents may still be liable to Capital Gains Tax if the property being given is their second home. The only way to avoid this is via the Private Residence Exception (Principal Place of Residence), meaning the property has been/is occupied by the parent as their main home.

Stamp Duty Implications
The child would also attract Stamp Duty whether the transaction is a Transfer of Equity or a purchase. On a Transfer of Equity, if the consideration being paid when added onto half the outstanding mortgage exceeds £125,000, Stamp Duty is charged at the usual rate.

If the child is completing the purchase as a Concessionary Purchase, then stamp duty is payable on the amount stated within the contract. This amount depends on what the mortgage lender states. In most cases the mortgage lender allows for the concessionary purchase price to be used, however some use the full purchase price.

Use our Stamp Duty Calculator for Gifting Property
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For tax advice on gifting property to family you should always speak to a tax specialist.

Gifting property with a mortgage

Where the buyers are paying some money to the sellers using a mortgage then they'll need to get an undervalue mortgage offer. For example, if the property is worth on the open market £500,000, however the buyers are getting a mortgage for £250,000 and this is all they are paying (the total consideration) then the mortgage lender must be informed this. The mortgage lender will state within the mortgage offer that they are aware the property is being sold under market value.

If the mortgage lender doesn't confirm it is an undervalue mortgage offer then your solicitor will need to reflect the full purchase price in the contract of exchange and SDLT will be payable on the total price. Read more about Concessionary Purchases and what you need to do.

Gifting property with a mortgage means that the transaction must be a sale and purcha\se because the mortgage lender will require standard conveyancing protocol to be followed by the purchasing solicitor.
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Should Independent Legal Advice be sought by the parents gifting property?

Where parents gift a property to a family member and they remove their names from the deeds in full they can complete the transfer with a deed of gift. As we've seen above, this means the parents aren't required to be legally represented (they can choose not to be). There maybe occasions where they may need to seek Independent Legal Advice:

  • Declaration of Solvency. A gifted transaction can be reversed if you are made bankrupt within 5 years of the transaction. It may be a requirement for the parents to complete a declaration of solvency to confirm they are currently solvent and their assets are greater than their liabilities.
  • ID1 Form. Whilst it isn't advice, if the parties leaving the legal title aren't represented by a solicitor then they must get their ID verified using an ID1 Form. Our solicitor can help verify ID via Skype so get in contact if you need help - 0333 344 3234.

Why is there so much confusion about how to gift property to children?
Here are 3 independent solicitor's opinions on Gifting Property to children:

Solicitor 1:
‘We would treat this as a sale and purchase unless someone who is already on the title would be remaining on the title. If it is a sale & purchase, the father and son each have competing interests, so advising both would mean a conflict of interests. Each party should have separate legal representation so their best interests are considered. It could be in the seller’s best interests to not transfer the property and we must advise as such. Plus, this could be set aside as a voidable transaction if a third party later claims it resulted from undue influence and there is no evidence of separate and considered legal advice’.

Solicitor 2:
‘If there is no new or existing mortgage, and the transaction is between close relatives, we could complete a Transfer of Equity. We would, however, require the parents to seek independent legal advice. However, if a mortgage lender would be involved, the mortgage lender would request this be conducted as a separate sale and purchase’.

Solicitor 3:
‘If the property is being given for nil/no value, this could be a Transfer of Equity however the usual rule is that one party must remain on the title deeds. We would ideally prefer clients to have separate legal advice as there could be tax implications and undue influence concerns. If money is involved, we would certainly treat this as a sale and purchase’.

How much under market value can you gift the property?
Property can be transferred for full value, under market value and for no consideration at all. A property can transfer for whatever is agreeable between the seller and the buyer, although there are implications to consider such as capital gains tax, stamp duty land tax and if the buyers need to get a mortgage within the first 6 to 12 months after the property has been gifted.

Mortgage deposit gift from friend - What is the process?

We cover the process for receiving a gifted deposit for your purchase her - Gifted Deposit Process.

Do you need help transferring property to your children?

To speak to a specialist solicitor in this area and for help in supporting your children into their first property, call 0333 344 3234 for a fixed fee quote.

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