A reader writes:
My husband and I split up several years ago but never divorced. He continued to live in the family home, first with both of our children and then with just our daughter, after my son went to university.
My husband died last year but left no will, and we are currently sorting out his estate. I have inherited the house under the intestacy rules, but it was always our plan that our children should have it – or at least the value of it – not least because it is still the home of our daughter, and I now have my own home elsewhere.
If the house was purchased on the open market, the price paid by the purchaser – something around £200,000 – would be liable to stamp duty. Can I sell the house to the children for less than the stamp duty threshold? Can I actually give it to them? If I do this, can my daughter, who is soon to get married, buy out her brother so that she can remain in the house with her new husband?
What is the best way to sort out ownership of the house so that my husband’s wishes are achieved, the transaction is fair to both children and we pay the least tax?
Annie Shaw replies:
It appears you have inherited the house outright and you don’t want it, or the monetary value of it. You do, however, want your daughter to remain in it and your son to receive half the value of it, in accordance with your husband’s unwritten but verbally stated wishes.
The simplest thing would be for you to give the house to your son and daughter and for your daughter and her fiancé to raise a mortgage for 50% of the value of the property and give that money to her brother – assuming your daughter doesn’t have the cash to buy him out.
If for any reason you did not think your daughter would go through with this, you could sell the house to both your son and daughter, giving your son part-title to the property and using the proceeds of the sale to reimburse your son, who would then relinquish his share.
Avoiding stamp duty
The latter route is less tax-efficient, because if you sold the house to either or both of your children at anything like market value, they would have to pay stamp duty land tax (SDLT) on the purchase. Stamp duty starts to kick in at £125,000.
A better solution, if you need to go down the sale route, might be to sell the house to your daughter alone for half the market value (a sale for £100,000 would be a transaction that comes in below the SDLT threshold) and then give the entire proceeds of sale to your son.
The key to avoiding paying SDLT unnecessarily is to ensure that no transaction value exceeds the stamp duty threshold or, in the case of the transfer of a higher-value property that would be taxable if it was sold for money, no cash or other financial consideration such as a mortgage is involved. As long as all transactions are worth less than £125,000, or no consideration is made, there will be no SDLT to pay.
Don't forget inheritance tax
It therefore seems that, as long as everything is amicable and every party to the arrangement is trustworthy, gifting the house to your daughter or gifting it to your son and daughter jointly, with your daughter then buying out your son – a transaction that would involve half the value of the house, so below the SDLT threshold – would be the simplest move.
The one drawback to this solution would be that the gift of the property by you to either one or both of your children would become a potentially exempt transfer for inheritance tax purposes. If you did not survive for seven years after making the gift, and your estate was in danger of being liable for inheritance tax, the value of the property would be included among your taxable assets, possibly creating or increasing an IHT bill on your estate.
* Read Annie Shaw's money articles every month in Saga Magazine.