Selling to tenant - a thought

[RandomQuestionOfTheDay]

Random thought of the day. We let out DH’s old flat he lived in before he met me. Had the same tenant for about 5 years. Last time we remortgaged we checked whether the tenant would like to buy it, and he said he would at some point in the future, he’s saving up for the deposit (all via managing agent).

There are reasons now why we’d prefer really to sell it sooner rather than later. If we sold it to him we’d sell it below the market price anyway. So I was wondering if instead we could sell it to him at market price but gift him say £10k on exchange towards the deposit? Win- win?

I think house builders do something similar when they advertise a ‘mortgage contribution’, it must help shift stock without down-valuing the other houses left to sell.

It would still be below the stamp duty starting point so no extra cost for the tenant there. We’d have to pay capital gains tax on the full market value so extra cost to factor in for us.

Hi, I think you're nice people.
If you've done the math, why not discuss it with your tenant and see what helps them (and yourselves make the sale)
Maybe your tenant will have input that will lead to a better arrangement.
I know a lot of people who love the flat they rent but just can't afford the deposit to buy yet, so this would be a great story.
You should consider sharing in The Guardian if you want to, I really think we need good housing/landlord stories out there.
Good luck

I don't know, but I would be surprised if a mortgage company would accept that gift as a deposit. Money laundering checks would be more complex I'd think too. If the money was not needed for purchase, but rather to bolster savings & give a bit of cash for works to be done it might be easier.

I think FTBs have to prove they have the deposit before they can Exchange? (not 100% sure though, you would need to ask a solicitor).

If they have a family member who could gift them the 10k instead ahead of the move, that would be better. You could then gift them the10k after Exchange to pay the family member back. A lot of trust needed for that to work though.

It's an interesting idea & very nice of you.

Do you use Reddit? You would get some great advice from the r/housingUK sub on that.

From a capital gains tax point of view, if you deliberately sell below market value, you would have to pay capital gains tax on the market value

Market value is subjective though isn't it? I'm sure the idea to sell it slightly below market value could work as long as it wasn't completely obvious.

Home owners are entitled to accept a lower offer on their properties than another person might offer in exchange for convenience, say.

It has also just occurred to me, @RandomQuestionOfTheDay another way round this could be for you to not charge them rent for a few months to enable them to build up a deposit quicker? Again, a lot of trust needed that they will use the money saved to purchase your property.

Apparently possible, but requires a specialist lender.

That’s great thank you, I didn’t know that sort of scheme existed. It limits their mortgage lenders though. This kind of thing should definitely be considered more by the banks, as there are landlords wanting to sell right now and tenants who can’t save the deposit because of rent.

I’m not being crazily generous by the way, selling to the tenant has benefits to us too (in particular it not being empty for a while).

It’s a thought for now while we’re considering what to do, thanks all.

Also just a thought to add,do a private sale dont bother with estate agents- that will save £.

Talking about below market price- if estate agents value it knock £20,000 off for actual mortgage valuation and use that figure to knock it down a bit. Our house was valued at £415000 &£400000 by 2 estate agents. Mortgage valuation was £380,000.

Definitely worth exploring. Perhaps agree to 3 valuations and take the average minus £10k. You can save the estate agent fees too

Take the average of 3 EA valuations minus 5% would be reasonable. Or somewhere between 5-10% if @RandomQuestionOfTheDay wants to be generous to their tenants or feels the EAs are overvaluing to get the business. Though that’s hard for a homeowner to know without the property actually going to market.

This is totally incorrect.

I think the tenant will say no given they have been paying OPs mortgage off for 5 years. £10k off the market is pants. I think OP’s tenant might find it quite an insult to think this is a good offer tbh. Simply because prices are dropping everywhere.

OP, don’t listen to other typical sellers on MN who desperately don’t want you to sell “too low” for their own gains. They’re thinking of themselves, not giving you the advice you sought.

You know your tenant, you know your own situation. My advice was just do the math for yourselves (but not from a point of greed) and then discuss with the tenant something that seems like a good offer to them and you. Greedy people overcomplicate things.

basically, You have a strong potential buyer who is someone you know (highly unlikely to pull out too) and have an opportunity for a quicker sale, no EA fees and contracts. Your tenant should still do surveys etc and conveyancing as you should too.

i think you’re very lucky considering the market is going down. Just discuss it with them :) Good luck

From a capital gains tax point of view, if you deliberately sell below market value, you would have to pay capital gains tax on the market value
Would this not depend on whether it's a genuine "bargain made at arm's length", or whether there was some connection between the seller and buyer?

Re the mortgage, you could google Concessionary Purchase or Genuine Bargain Price to find out more. A thread asked the same question a while ago.
https://www.mumsnet.com/talk/property/4468740-Landlord-to-tenant-gifted-deposit

This isn't the case at all provided the buyer and seller are not connected.

Wow you are really reaching. This is so unbelievably incorrect.

iovebread I was agreeing with you, so I think you must have misread what I wrote! 🙂

Yes I realised, apologies to you! i read that silly comment again about capital gains and just made me think, this is how misinformed is spread. By people who don’t understand anything in context! Goodness sakes.

For others: the context OP described is not an issue for capital gains. It’s nor different than the 10-20% off the asking prices we are seeing around the country right now, except OP is thinking ahead as they already have a potential buyer in the tenant.

lots of people sell their BTL to their tenants at below market value simply because the tenant contributed to the mortgage in the first place . It’s not rocket science.

I would sell my BTL to my tenant too. It’s a good thing to do and helps people get on the property ladder in a home they already love. Wish more people were like OP.

As the OP isn’t Bernie Ecclestone, as long as you pay CGT they won’t check the selling price against other local properties. In a falling market, and for a quick sale, a slightly lower price is justifiable. The op just needs to talk to the tenant about their financial position and if they still want to buy.

Interesting! Let us know what the tenant says OP.

I would cut out the middle man ie the letting agent so that you and the tenant can speak freely.

I wanted to sell a property to my son at £50 under value. I was told by my solicitor the mortgage had to be for the full market value and I could gift my son £50k deposit. This is what his mortgage company told his solicitor was correct to do. I had to pay CGT on the full value the mortgage company valued the house at.

I had to pay CGT on the full value the mortgage company valued the house at.
That's because it wasn't a genuine "bargain made at arm's length", as you're related to your son.

Because your son is a connected party. The OP selling to her tenant isn't the same.

I was told by my solicitor it was because those are HMRC rules. CGT is always on full value of property and when you fill out the CGT form to determine how much you have to pay it specifically asks the question was the house sold at under full market value? Obviously I had I sold for £50k less I'd have have to tick yes. Next question was if yes to above, what was full market value?

£50k under is a lot though. That’s clearly reducing CGT by 18 or 28% on that sum of money. £10,000 below what the average valuation is or mortgage valuation is around market value in a falling market.