Whilst the majority of instructions we receive are for buying on the open market, we are sometimes asked to have the title to a property transferred between family members. This article looks at the various considerations at play with transfers between parties, which may either be for no money (or “consideration”) passing between the two members or for a low value.
– Conflict scenarios
Whilst the nature of the family set up is that it is unlikely that a disagreement will arise (assuming there is consensus about the property transferring), there are practice rules set down by our governing body, the Law Society of Scotland, which determine whether we may act for both the giftor and recipient of the gift. Generally, the firm cannot act for both sides, but certain exceptions apply. One of these is that if parties are related by blood, adoption or marriage, one to the other, or one of the parties is so related to an established client of the firm. If the parties fall into this category we can be instructed to act on both sides assuming both parties agree to this.
-Requirement for an EPC
An inter-family transfer of property still requires an Energy Performance Certificate (“EPC”), however a full home report is not required in the scenario where there is a private sale and the property is not placed on the open market. An EPC is valid for 10 years, so it is worth checking whether the property in question has had one prepared in the last 10 years and if not, this will require to be obtained from a surveyor.
Additional Dwelling Supplement (or “ADS”) is an additional tax charge payable in certain scenarios when purchasing property. One aspect to consider is in relation to a party inheriting a property. Someone who is entitled to be owner (e.g. a beneficiary under a Will who has inherited ownership of a dwelling) will count as being an owner of a dwelling for the purposes of ascertaining if ADS is payable for a subsequent acquisition of property and tax advice should be sought from the outset.
When a family member transfers property to another for no money, a document known as a Declaration of Solvency is to be signed. The giftor confirms in writing, usually in the presence of a notary public, that they are not insolvent nor using the transaction to dispose of an asset for no value, resulting in their liabilities exceeding their assets and therefore reducing the value of their estate to the detriment of any creditors in a bankruptcy situation.
Finally, it is commonplace for children to be provided for in their parent’s Wills. Thought may need to be given as to whether a transfer of property to one particular child is actioned alongside testamentary arrangements to protect other siblings.
For any help and advice contact a member of the Blackadders Property Team working in Aberdeen, Dundee, Edinburgh, Glasgow, Perth and across Scotland.