Buying a property from your parents is a common family arrangement and there is nothing legally unusual about it. The transaction follows the same legal process as any other property purchase, with a few specific considerations that arise from the connected relationship between buyer and seller. The most important of these relate to stamp duty, capital gains tax, mortgage lending, and the treatment of any discount on the sale price.

This guide explains what buying from your parents involves, the tax implications on both sides, and the practical steps to take to ensure the transaction is handled correctly.

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The Legal Process

A sale from parent to child is a standard conveyancing transaction. Both parties need their own independent legal representation: the parent needs a solicitor to act on the sale, and the child needs a separate solicitor to act on the purchase. The same solicitor cannot act for both sides in a transaction where the interests of buyer and seller may diverge, and lenders require independent legal representation for the buyer in any case.

The transaction follows the same stages as any other sale: title investigation, searches, exchange of contracts, and completion. There is no legal mechanism that makes the process faster simply because the parties are related, though in practice family sales often have fewer complications than open-market transactions.

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Selling Below Market Value

One of the most common aspects of parent-to-child property sales is that the property is sold at a discount to market value, sometimes called a concessionary purchase. This is entirely legal, but the discount is treated as a gift from the parent to the child for various tax purposes, and the implications need to be understood.

Stamp duty land tax

Stamp duty land tax is calculated on the actual consideration paid, not the market value. If the child buys at a discount, SDLT is payable on the discounted price. This is generally beneficial for the buyer. However, if the property being purchased is a second property for the child, the three percent surcharge for additional dwellings applies in the normal way. If it is the child's first property, first-time buyer relief may be available on the purchase price up to the relevant threshold.

Capital gains tax for the parents

If the property being sold is the parents' main residence and has always been their principal private residence, no capital gains tax arises regardless of whether it is sold at market value or below. Principal private residence relief fully exempts the gain on a main home.

If the property is not the parents' main residence, for example if it is a buy-to-let or a second home, capital gains tax applies. Critically, HMRC calculates the gain based on the market value of the property at the time of disposal rather than the actual sale price if the transaction is between connected parties. This means a parent selling a rental property to their child at a 50,000 pound discount will still be assessed for capital gains tax as if the property had been sold at full market value. The discount does not reduce the taxable gain.

Inheritance tax

A sale at below market value is treated as a gift of the difference between the sale price and the market value. This gift is a potentially exempt transfer for inheritance tax purposes. If the parent dies within seven years of making the gift, the discounted amount may form part of their estate for inheritance tax calculations depending on the total value of gifts made.

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Getting a Mortgage on a Below-Market Purchase

If the child needs a mortgage to fund the purchase, the lender will be aware of the below-market price and will conduct their own valuation. Most lenders will lend against the lower of the purchase price or the market valuation, so the child cannot automatically use the equity discount as a deposit substitute.

However, some lenders specifically offer concessionary purchase mortgages, which allow the discount to be treated as a deposit. Under this type of product, if the parents are selling at say 80 percent of market value, the 20 percent discount may be treated as a 20 percent deposit, allowing the child to borrow the remaining 80 percent without requiring any additional cash deposit. These products are available from a limited range of lenders and typically require that the discount is documented and that both solicitors confirm the arrangement in writing.

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What If the Parents Still Live in the Property?

If the parents intend to continue living in the property after selling it to their child, this creates a gift with reservation of benefit for inheritance tax purposes. The discounted amount, or the full value if the property is sold at well below market value, may continue to be counted as part of the parents' estate for inheritance tax even after the sale, unless the child charges a full market rent for the parents' occupation. This is an important point that requires specific inheritance tax advice.

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Summary

Buying a property from your parents is straightforward legally but has tax implications on both sides that depend on whether the property is the parents' main residence, whether it is sold at market value or below, and how large any discount is relative to the parents' overall estate.

Both parties need independent legal representation. Capital gains tax on a below-market sale between connected parties is calculated on market value for the seller. A concessionary purchase mortgage may allow the discount to serve as a deposit. Inheritance tax implications of any gift element should be assessed in the context of the parents' estate planning.

Taking advice from both a solicitor and a tax adviser before proceeding is strongly recommended for any transaction involving a below-market element or where the parents intend to remain living in the property.