Gifting Property - 4 ways to gift your property


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There are 4 ways to gift your property:
  • Sale and Purchase at full market value
  • Concessionary Sale and Purchase at under market value
  • Transfer of Equity
  • Deed of Gift, also known as a 'Transfer by Way of Gift'

The process for gifting property to family or children should be simple however there are tax and legal implications to consider, especially around the intentions for the transfer. We include in this article:

What are the risks of gifting property?

There are several risks when gifting a property:
  • Insolvency - if you are made bankrupt within 5 years of gifting the property then the transaction could be voided. Click to read more about the 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.
  • 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 something that we cover in this article: 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. Click to read more about ways you make a loan instead of a gift.

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Views from 3 independent solicitors on Gifting Property

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’.

Can you transfer the property for under market value (undervalue transaction)?

Property can be transferred for full value, under market value and for no consideration at all. The challenge arises if the buyers are getting a mortgage and you are choosing the latter; selling the property under market value.

You'll need to get a mortgage broker to find a mortgage lender where they will accept this style of transaction which is called a Concessionary Purchase. In essence the seller's are gifting an element of the property and the balance (the consideration changing hands) is being funded by a mortgage. The challenge with this style of purchase is what purchase price to include on the contract of exchange. It will either be the full purchase price, or the lower purchase price. This will depend on what is included within the mortgage offer from the mortgage lender. Read more about Concessionary Purchases and what you need to do.

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Should Independent Legal Advice be sought by the parents gifting?

If your intentions are to remove all owners from the title and replace them with new owners, then you will need to find:

A solicitor is bound under the Solicitor’s Regulation Authority Code of Conduct to act in the best interests of each client and only act for one client where a conflict of interest could arise.

Waivers can be signed by the party not receiving the legal advice, however there are risks involved. These risks are addressed if simply handled as a sale and purchase as the acting solicitor for the father advises the father and the acting solicitor for the son advises the son.

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The gift where the child carries the heaviest risk

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 (sale) can be set aside as if it had not happened in the first place, leaving the child with nothing.

Tax implications

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.

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For tax advice you should always speak to a tax specialist.

So how can you gift property to your family (Sale & Purchase vs. Transfer of Equity vs. Concessionary Purchase vs. Deed of Gift)?

  • 1Complete a sale and purchase
  • It is advisable a Sale and Purchase is undertaken for all gifted property transactions where:

    • None of the original owners are going to remain on the legal title; and/or
    • The new owners are going to be getting a mortgage.

  • 2Removing one parent, father or mother, leaving one on the title and adding children

  • It is advisable a Transfer of Equity is undertaken for all gifted property transactions where:

    • One or more of the original owners are going to remain on the legal title.

    A Transfer of Equity may still have tax implications for the current owners of the property, for example Inheritance Tax on the gift or Capital Gains Tax on any gain. The current owner being removed may also need independent legal advice. The new owners would be taking a gamble by obtaining a property with potential defects and no re-sale-ability or remortgage prospects. The child could be left with a property that can’t be sold in an ‘at arm’s length’ transaction or be able to register a mortgage interest over the title.

  • 3Concessionary Purchase

  • This is explored above - click here to find out more - and best suits situations where the family member giving the gift doesn't want to give a whole property away but is prepared to sell it at a discount, making it cheaper for the family member buying. Very often, the family member buying uses a mortgage to purchase the dwelling and the discount counts as the deposit, subject to lender approval.

    NB You MUST inform your lender if you are looking to buy a home via a Concessionary Purchase such that they are fully aware of the situation, not least because there are also implications for the amount of stamp duty you might have to pay.

  • 4Deed of Gift/Transfer By Way of Gift

  • With a transfer of gift/deed of gift, a property owner gives up their interest in a property without gaining a 'valuable consideration', i.e. without receiving cash or assets or a debt in exchange. The property owner must be acting of their own free will for it to be lawful and the process may require their taking independent legal advice. Additionally a deed of gift can only be made if there are no debts secured on the property and the owner is recognised in the Land Registry's proprietorship register.

    NB This should not be used as a way for an owner to escape creditors: if a property is transferred for less than market value and the transferor becomes bankrupt within the next 5 years, then the official receiver or trustee in bankruptcy can get the transaction reversed. The reversal is easier to achieve through the courts when the transfer is to a close family member.

    Often with a deed of gift, the transferor will want to continue living in the property afterwards. Inheritance tax will continue to be a factor for the following 7 years, however after that, the family member who received the gift can grant the transferor what's known as a lease for life. The law converts a lease for life to a 99 year lease which is terminable on the death of the tenant.

    This is a complex area however, because should the property receiver sell up, the lease, being an equitable interest, is trumped by the action so the transferor would then have to vacate the property. One solution is for the property receiver/owner to grant the transferor a fixed term lease, which would survive any property sale. However that:
    • might survive the death of the transferor; and
    • will have value for IHT purposes, how much depends on how many years remain on it.
    Some legal sources counsel that the transferor should pay rent to the new owner of the property after the transfer - as long as this is market rate, the home cannot count towards their estate on death. Additionally the money paid in rent might be thought of as money which would have been passed on eventually otherwise.

    For parents who jointly own their property with their children it is advisable to hold the property as Tenants in Common and draft a Deed of Trust to set out your beneficial share in the property. You can declare any share in the property 99%/1% so that any gain in the property is shared 99% to your children and 1% to you. You could even share the property 80% to you and 20% to your children, and then over time, agree to gift shares in the property to your children.

    Make sure to speak to a tax specialists when gifting money as part of your Inheritance Tax Planning.

    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.

    Get a Conveyancing Quote to Transfer Your Property to Your Children *
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    No time for forms? Call our specialists on 0333 344 3234 (local call charges apply).

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