selling under value property to parents

revrev

Hi

I have a buy-to-let property that I am thinking of selling to my parents at an undermarket price.

The property would likely have an open market valuation of around £150K but lets say I privately sell them the property for £125K.

Do my parents pay Stamp Duty Land Tax on the actual sale price of £125K (i.e. %0 as of July 2010) or on the market valuation?

If Stamp Duty is based on the market valuation, whose valuation is used?

Again, for my own CGT purposes do I use the figure of £125K in working out my gain when the property is transfered or do I use the market valuation?

I have seen a very frequent poster state that such a vendor would still have to pay tax on the difference between the sold price and the market value. Others seem to say that this is not the case. I'm confused!

Is there anything in particular that connected sales require in terms of paperwork when selling at an undermarket price?

In the above scenario:
- there is no issue of 'deprivation of capital' on my part
- my parents will be cash buyers
- the property in question has never been a principal residence nor will it become one if sold to my parents

Thanks in advance.

00ec25

Good news
Stamp duty is payable on a cash basis in your case, ie the amount they actually pay, not the market value

Bad news
CGT works on the market value because you are selling it to a "connected person" and therefore HMRC rules covering that situation apply - see the HMRC website here (at step 1) and the link to the definition of connected persons

Fatenbread

revrev wrote: »

Hi

I have a buy-to-let property that I am thinking of selling to my parents at an undermarket price.

The property would likely have an open market valuation of around £150K but lets say I privately sell them the property for £125K.

Do my parents pay Stamp Duty Land Tax on the actual sale price of £125K (i.e. %0 as of July 2010) or on the market valuation?

If Stamp Duty is based on the market valuation, whose valuation is used?

Again, for my own CGT purposes do I use the figure of £125K in working out my gain when the property is transfered or do I use the market valuation?

I have seen a very frequent poster state that such a vendor would still have to pay tax on the difference between the sold price and the market value. Others seem to say that this is not the case. I'm confused!

Is there anything in particular that connected sales require in terms of paperwork when selling at an undermarket price?

In the above scenario:
- there is no issue of 'deprivation of capital' on my part
- my parents will be cash buyers
- the property in question has never been a principal residence nor will it become one if sold to my parents

Thanks in advance.

Not a tax expert, but I believe that stamp duty is payable on the sale value, and I know that capital gains tax is payable on the market value (or more accurately, on the market value less sale costs and the original purchase price adjusted for any CGT allowances applicable).

It is the vendor / seller that pays the CGT.

There is of course no way that you can determine the market value with certainty.

Finally, there may be an inheritance tax impact due to a the below market purchase.

I would get some tax advice from a suitably qualified accountant before proceeding, as they will be better placed to advise you on the interaction between the various taxes, and also in negotiating the CGT payable (if any) to HMRC.

jockosjungle

Its "not a bargain at arms length" so you'll have the sale value at market value, not sure for SDLT. HMRC have their own people who do valuations but are likely to accept yours if done by a professional and seems reasonable. Your parents are definitely also a conencted person so again market value needs to be used

R

revrev

Thanks for the amazingly fast responses.

Suppose the property is sold for £125K thereby saving my parents Stamp Duty Land Tax. It is also agreed that the market price is £150K and that this is the figure I use for my CGT calculation.

Does it follow from this that if my parents then sell the property for £170K that they use a base price of £150K when they come to do their CGT calculation?

Thanks.

Fatenbread

jockosjungle wrote: »

Its "not a bargain at arms length" so you'll have the sale value at market value, not sure for SDLT. HMRC have their own people who do valuations but are likely to accept yours if done by a professional and seems reasonable. Your parents are definitely also a conencted person so again market value needs to be used

R

This is true, though you should also note that their word is not gospel - you can challenge the assumptions they have made and provide more information to consider if you disagree with the market value they calculate. But you're better off getting your own valuation and then using someone who has experience of dealing with HMRC to negotiate the tax payable on your behalf.

Fatenbread

revrev wrote: »

Thanks for the amazingly fast responses.

Suppose the property is sold for £125K thereby saving my parents Stamp Duty Land Tax. It is also agreed that the market price is £150K and that this is the figure I use for my CGT calculation.

Does it follow from this that if my parents then sell the property for £170K that they use a base price of £150K when they come to do their CGT calculation?

Thanks.

Yes, they would use the market value as the base cost.

Check out the HMRC websites guides on CGT for more information. The reliefs available differ depending on how long you have owned the property and the date you bought it (which are different things, even though they sound the same).

HMRC are generally pretty helpful for queries over the phone as well (although they won't go out of their way to minimise your tax bill, for obvious reasons).

dmg24

You mention deprivation of capital - are you intending to claim benefits? If so, the transaction could well be seen as intentional deprivation.

revrev

I mentioned that there is no issue of 'deprivation of capital' on my part. I'm attempting to pre-empt any questions about 'deprivation of capital' because it is not relevant in my case.

jockosjungle

Wouldn't have thought you can't use a different value for SDLT, would have thought the same rules about connected persons would apply

R