Selling property to a relative - a minefield?

[stonecircle]

Not sure if this is the right place to post, but here goes. Through a complex set of circumstances my sister and I own a property which we now want to sell. My niece wants to buy it but it is a bit above her price range. My sister has said she will make up the shortfall for my niece out of her half of the proceeds and is very keen for her to buy.

To be honest I'm uncomfortable about selling to family. DN would be unable to buy without dsis's help so I sort of feel under self-imposed pressure to keep the selling price down. But I have children myself and want to be in a position to help them as much as I can when they need in the future.

Obviously we will need to take legal advice but I just wondered how people go about agreeing a price when selling to relatives. We've had an estate agent's valuation of £250k which dsis is very surprised by (we paid £230k three years ago so it seems reasonable to me). Obviously we would deduct whatever we would have paid in estate agent fees but should we deduct more because she's family? Should we put it on the market to confirm that people are prepared to pay the full amount (it's in a popular area and we paid the full asking price 3 years ago)? Or should we accept the estate agent's valuation? Should we get a few valuations and take the middle one?

It's making me feel quite anxious - I get on very well with my sister and niece and I don't want anything to spoil our relationship. I don't want them to think I'm being mean but equally I sort of feel I'm being pushed into this and don't want to feel resentful because I've been overly generous in selling (not in my nature!)

Does anyone have any advice on how to deal with this situation?

[canyou]

we did this in so far a cousin bought my grandmothers house,
We got two valuations and sold it at market value to her. anything else is unfair, We agreed that she was buying for xxx amount and would pay 60% to take possession of the house and had 12 months to get the remaining 40% to us. If she failed to pay the remaining money we would take legal action and there would have been interest penalties.
A solicitor drew up this agreement for us and realky out pressure in us to sell at market value to avoid fallout and bad feelings further down the road. It was simple and covered potential problems as like your niece our cousin was reliant on her mothers share off the sale to help pay.

[stonecircle]

Canyou - that's reassuring. My sis probably doesn't expect us to do anything other than sell at market value (although she has started pointing out a few things wrong with the property!) I'm just worried about feeling a bit mean. So it's reassuring to know that's what your advice was.

I think we will get another 1 or 2 valuations - hopefully they'll be in line with each other. It would be so much easier dealing with a stranger!

[HerRoyalNotness]

If it's in a popular area, I would sell on the open market, to get the fairest deal. Your niece could buy another property with help from her DM.

[MrsSquirrel]

Why does your niece want to buy this particular house? Is there something special about it? Some emotional attachment?

I would be uncomfortable about selling to family too. I agree with HRN. If you sell on the open market, sis will still have the proceeds of the sale to help dn.

[canyou]

Stone, it does cost but it is def worth using a solicitor and maybe an estate agent but it can cause a bit of hard feeling for a while. It will protect everyone. Your niece will need an engineers report and buys as is no come back it is what it is,. You need to meet your sis in a coffee shop and agree on things but maybe after you get advice

[mipmop]

It's probably worth speaking to a conveyancing solicitor. I think that selling at a lower price to family can attract attention, much like selling around the SDLT threshold then paying a few thousand for moveable items. SDLT is due at market value, not family discount value, isn't it ?

[greenfolder]

i bought my mums house. she had 3 valuations- £250, £240 and £235. We paid her £245 as felt that she could have got that for it and acknowlegement of savings in estate fees etc all round. do not sell it for less than market value.

[poshfrock]

Don't forget about capital gains tax if you've made a profit on the property since acquiring it. If you sell to a family member at an undervalue you will still be taxed on the market value as it's not an "arm's length transaction."

So if you bought it / inherited it at a value of £200, 000 and it's now worth £250,000 then you will pay tax on the gain of £50,000 even if you actually sell it to the family member for £230,000. CGT rate is 18% or 28% depending on size of gain and your other income.

[stonecircle]

That's interesting Poshfrock. We acquired it in 2011 for £230k. So if we sold it now we'd have to pay CGT on the £20k gain?

[WaffleWiffle]

I just wondered how people go about agreeing a price when selling to relatives

My Mum and I 'swapped houses' (ie we bought each others houses) about 8 years ago.

We came to the agreement that to find a fair price for both houses we would each get three valuations and would pay the price of the middle valuation.

Worked really well for us.

[pilates]

Also, another thing to bear in mind, the stamp duty that a purchaser would pay jumps to 3% on properties over £250,000 and so I would imagine your niece will not want to pay over this amount. I would get three valuations from local agents. Good luck, it would probably be easier and less hassle to sell on the open market.

[VivaLeBeaver]

I've done this.

We got three valuations and went with the middle one of 145k.

I offered and had an offer accepted of 135k. My brother had already said he'd be happy to get between 135k and 140k before he knew I was interested.

I figured they're getting a quick, no chain sale which is worth something, then money off for no estate agents. I've also managed to do the conveyancing myself so that's maybe saved another £500.

[VivaLeBeaver]

Stonecircle, I think every person has a CGT allowance of 16k. So if you and your sister have made 10k profit each I don't think you'll have any to pay.

[allmycats]

Get 3 independent valuations and sell it for the average of the 3. Yes, you will have to pay your share of Capital Gains Tax on the profits, BUT,
everyone has their own CGT allowance so, as long as the share of the porfot is less than your annual allowance then there will be no tax to pay. If it is over the limit, i.e. your personal profit is - say 20,000 and the annual GTS allowance is 16,000 you would pay tax on 4000.

[JaneParker]

Yes if your share of any profit is under £10k ish then you willn ot pay capital gains tax as yo uhave an annual allowance in addition to your annual income tax allowance. Also you can set purchase and sale costs against your capital gains tax liability and also any capital losses you may have made in earlier years such as on sale of shares or other properties.

Also why does she want this property? If the only reason is because she and her aunt are screwing you over then sell to a third party and let your co-owner help her niece in other ways.

[stonecircle]

Oh no, no question of 'screwing me over' Jane. It's complicated and I don't want to give too much information away. But there are particular reasons why my niece wants to live in this specific area and it is a lovely property. She knows it very well so no hidden surprises for her. Plus, while my age-related cynicism can predicate any number of problems in selling to family, she's young enough to take a more naive approach and no doubt thinks how much easier it would be to buy from family rather than complete strangers who may cause problems/pull stunts in the sale process. There's no pressure on us to sell quickly so she knows we'd wait until she's found a buyer for her flat.

[poshfrock]

The annual CGT exemption is currently £11k each; not £16k.

[poshfrock]

Something else to bear in mind that whatever value you eventually agree on you may have to justify it to HMRC if they decide to investigate. This is why for these sorts of transactions I would normally recommend a professional valuation. You can submit a copy to HMRC with the tax calcs when you do your tax return and then if there are any queries they ( HMRC) will go to the valuer rather than coming to you.