Can we sell our flat to our children for below market value?

Q My husband and I own a flat in London. Our children have recently inherited some money which they wish to invest in something. Between them all they could afford to buy our flat off us if we sold it to them for the price we bought it for five years ago. This would mean we would be selling it to them for about 25% lower than its market value. Can we do this? We cannot afford to just give it to them. What are the pitfalls for them in owning it jointly as siblings? We have tenants in the flat so they would get a modest income from it. PB

A Provided all your children are over 18, yes, you can sell your flat to them. If they’re not, no, you can’t because a child under 18 can’t own land or property in the UK. But assuming it is a possibility, whether you should go ahead with selling your flat to them at a discount price is quite another matter.

Selling your flat to your children for the price you paid for it doesn’t reduce any potential capital gains tax (CGT) bill because, for tax purposes, the gain (or loss) you make on disposal of the flat is taken to be the difference between its market value and the price you paid for it even if you sell for less that market value. The difference between the price your children pay and its true value also counts as a gift for the purposes of inheritance tax. However, if you’re still alive seven years after making the gift, it loses its liability to inheritance tax.

If your children are first-time buyers, they should think seriously about not buying your flat off you. Because they are not going to live in the flat, they wouldn’t qualify for exemption from stamp duty land tax (SDLT) for first-time buyers who buy a home of their own costing up to £500,000 (the first £300,000 is zero-rated, 5% is charged on the remainder up to £500,000).

If your children already own their own homes, as well as not qualifying for first-time buyer relief, they would also have to pay the higher rate of SDLT – which is the standard rate plus three percentage points – on the purchase of your flat.

Whatever their current ownership status, they should be aware that they will be liable to CGT when they come to sell your flat (assuming they did buy it). There wouldn’t be a CGT bill on selling a property which they had lived in as their main home.

As for the pitfalls of joint ownership as siblings, you are better placed to identify potential problems than I am.


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