If I buy a house so that my daughter can live in it, can I charge her rent and then sell it to her later?

Question

My daughter won't be able to buy a house for years. If we bought one and her friends paid rent, could we sell it, cheaply, to her in a few years at the price we paid today? What penalties would I have to pay? Inheritance taxes etc?

I live in Essex and she now lives in Norfolk with her boyfriend. She met him through university and isn't gonna come back so that she can live rent free!

I knew I had lost her when she said that we could turn her bedroom into a games room for her brother!!!

In todays market, she'll be 50 before she can afford a one bedroomed hovel in a bad part of town

Answer 1

yes i did this with both my kids they paid rent untill they were old enough and earning enough to get a mortgage and then i sold it to them for a price they could reasonalbly afford to pay. you need to move in yourself before you sell it to them or you get stung for capital gains tax. we switched houses for a while to do this.kids these days cant raise the income for the mortgage repayments on a property these days i really feel for them sometimes.

Answer 2

You can do this , but create an agreement so you can fix the price at a lower level and then she can exercise her option to buy conditional on making regular rental payments. A solicitor can make such an agreement under deed so its fully enforceable in law.

If you give your daughter the house, its PET, potential exempt transfer, and you must survive 7 years before no inheritance tax is payable, since this second house is also yours, you may captial gains on increase in value, you may be able to claim reliefs though.

The problem will arise that if you have no written agreement now, but in the future you give her a discounted rate on the house, that you will need to give your daughter deed of gift which may attract IHT is you die within 7 years, secondly if you sell and soon after become insolvent, the trustee in bankruptcy may void the transaction as a transaction under value. So my advice would be to make an agreement and get your daughter interest noted as Notice on the charges register on your proposed property so her consent will be needed if you try and sell to someone else.

Answer 3

if you sell it to her cheaply then you will be liable for the same amount of tax as you would be selling a house to anyone.

What about working out what the mortgage is going to cost, and although it is in your name if her and her friend can afford to pay that then let her pay the mortgage in your name until there is enough equity in the property and then gifting it to her (therefore no tax) she can then get a mortgage on the property and pay you back the remaining amount.

It is a really nice thing to do for your daughter. But I would seek solicitors advice before progressing any further.

Good luck x x

Answer 4

Why don't you just put your daughters name on the deed as that was there would be no actual sale in the future - you would avoid any further stamp duty (buying/selling fees) and capital gains tax.

Also, I don;t know how transfering ownership would work in regards to a mortgage lender but some companies might be a little twitchy about trying to short-cut the normal routes of home buying and this could affect any borrowing potential she might require.

I would talk to a financial adviser or even a legal advisor about a simple Transfer of Deeds ........ simply transfering ownership from yourselves to your daughter!

Answer 5

Probably a gift tax (usually no inheritance tax unless you die).

The rent could theoretically be considered payments on the house (if your daughter made them) and be factored into the final price of the house.

Rent payments from her friends would probably be considered as income to you.

Talk to a financial planner or a tax accountant

Answer 6

Rent is for use of house only.It is not payment of purchase price.Only the buyer or owner can sell it.It seems what you require is an instalment purchase scheme,so that the monthly instalment is adjusted against purchase price.Rent agreement and sale agreements are different.You have to draft an agreement in consultation with a lawyer before going ahead.

Answer 7

I dont think there is any reason you cant sell it for whatever price you want, but with regards to inheritance tax, maybe you could transfer the title deeds into her name? My friends parents did this to avoid inheritance tax, so it must be legal. They were both sadly terminally ill, so transferred the deeds to the kids so they wouldnt have the tax to pay.

Maybe this is worth looking into, call a conveyancing solicitor to check.

Answer 8

I don't see any reason why you couldn't do this. You could do a lease option with her now. Her rent goes towards the down payment and she would have so many years before she decides to exercise her option to purchase it at an agreed to price.

Answer 9

Buy the house and let them pay the mortgage .but i think if you want to sell them it in a few years it has to be at the value the house is worth on the market then..

Answer 10

You can buy it and let her live free if you want, the money you get as rent will be considered income

It does not effect inheritance unless you die, it will effect capital gains tax.