Q&A Asset rich, cash poor – should we sell the house to our son?

Q:        Like many people these days, we find ourselves asset rich and cash poor in retirement and wondering whether to downsize. The children, however, don’t want to see the family home sold to strangers, so our son suggested buying the house off us. This would release our cash and improve our quality of life. If he does this, what would happen if we didn’t live 7 years? And should we pay him rent?

A:        If your son already owns a home and then purchases your property it would be classed as a second home and he would be liable to pay additional Stamp Duty. If he needs finance to purchase the property, he would not be eligible for a standard residential mortgage. If he lets you live in the property rent-free, he would not be allowed to claim landlord expenses to the same extent as he would as a standard buy-to-let landlord.

In addition, if the ‘fair market rental value’ of the house is higher than the annual gift allowance set by HMRC, then the excess amount may result in certain tax implications. Also, if your son sells the property following your deaths, and the property has increased in value since he purchased it from you, then it is likely that he will incur Capital Gains Tax liability. There may also be implications if your son were to get into a substantial amount of debt, as the debtors may take possession of the property, and if you were living in it at the time you would need to find alternative accommodation.

Before making any firm decision about selling to your son you should seek advice from a solicitor who will be able to discuss all your options in more detail. If you then decide to go ahead with the plan, it would be a good idea to request they draw up an agreement to ensure everything is done correctly, to avoid any legal and practical pitfalls.

This question has been answered by Clare Lewis, a Licensed Conveyancer with GHP Legal.  If you would like to speak to someone about this or any other legal matter, please visit our website www.ghplegal.com and use the contact us form, or call us on: Wrexham 01978 291456, Llangollen 01978 860313, Oswestry 01691 659194