What are the tax implications if I sell a property as a gift to a family member?

Hi,

Please can you inform me on the implications to all parties involved for tax implications on the following scenario:

• Brother wants to buy property owned by sister that he has been renting

• Sister wants to partially support by applying the family gifted deposit scheme to support brother through selling below market value

• I expect to provide any documentation required to confirm there is no expectation of paying any of this back or no expectation of me having a charge on the property

Please advise and thank you.

Hello,

While I applaud the support you are looking to give your sibling, there are a few things to worry about with this situation. Unless there are really good reasons left unsaid, I think this will be a scenario to avoid.

Two things are going to restrict you here: the criteria of the bank lending to your brother and the tax system. The first is probably more important.

As you have established, if a family gift is going to fund a deposit, this must be declared. Not only that, but most lenders won’t lend to you if the family member is too distant a relative (often it can’t be an uncle or an aunt). A sister gifting to a brother is close enough for most bank’s rules. But here’s the rub: the person gifting and the person selling the property cannot usually be the same person. In the jargon, the ‘vendor’ cannot be a ‘donor’ to fund the deposit. There may be specialist lenders who would look at this, but I’ve never heard of it.

Selling the property for below its market value is an obvious wheeze to try and avoid taxes; HMRC have thought of that one already. As far as Inheritance Tax (IHT), Capital Gains Tax (CGT) or Stamp Duty Land Tax (SDLT) are concerned, you pay tax as if the full market value had been paid. That would likely make this an expensive way of gifting to your brother. I think you would also have problems with the sequence of payments here if there was no cash involved in supporting your brother.

Unfortunately, this plan is a non-starter. If there are other sources of cash or other people who could make a gift to your brother (e.g. your parents), this will likely work better. I once bought a house without a mortgage broker, but this was in 2008. These days it is extremely unwise. The increased complexity of lending standards and mortgage processes makes an expert indispensable. I would get a good mortgage broker involved here; they can sometimes find a way forward.

Hope this was helpful.