Is it possible to buy a relative’s property?

Is it possible to buy a relative’s property for less than market value?

If you want to buy a property under market value from a relative – for example from your parents – there may be taxes and implications for you and your parents.

Gifted property

If you buy your parents’ property for less than market value, they will essentially be gifting the rest of the property (the difference between your purchase price and the market price) to you. 

If the property is worth £300,000 but you buy it for £200,000, they will be gifting you £100,000. There are a number of risks involved in purchasing a property this way, so it’s advised to seek legal advice.

If your parents own their home without a mortgage, they can still gift it to you, even if they’re still living in it. If you parents live for seven years after making the gift and no longer receive an income from it or reside in it, the property will be exempt from Inheritance Tax when they die.

Implications

If your parents become bankrupt in the future, the court can appoint an official to arrange for outstanding debts to be paid to creditors, which has the power to overturn under-value transactions.

In some cases, even though you parents own their own home, there may be some properties that can’t be gifted as there are restrictions involved, such as with retirement homes.

Your conveyancing solicitor will advise you of any issues like this when they investigate the property title.

Once your parents have sold the property to you, they no longer legally own it, and won’t receive any income from it. This is risky if they intend to continue living in the house and you fall out, as you could evict them as the owner.

Your parents may also be liable for accusation of Deliberate Deprivation of Assets if they gift their home, which some people do to avoid paying for potential future care costs.

If you die before your parents, the property will pass to whoever it is left to in your will (or whoever is entitled under intestacy laws) and your parents will have to move out.

Tax considerations

There may be certain tax implications such as a Inheritance Tax and Capital Gains, as well as Stamp Duty Land Tax. 

If the gifted property won’t be your main residence, you may be liable for increased Stamp Duty.

Things to take into consideration when purchasing your parents’ property

Despite the fact you may be well acquainted to the house, you should still submit property searches to protect your interest. Both parties should also hire their own conveyancing solicitors to avoid conflicts of interest.

Once you have worked with your solicitors to establish the deal, the purchase will go ahead as any other property purchase.