I am Buying a house, then renting it back to the seller

oldbikebloke

tim_london said:

Not with FCA or DWP but now you're in trouble with SDLT, CGT and inheritance tax.

When you buy the house it have to be at market value for tax purposes.  Your friend can 'gift' you the balance owed, but that only complicates the tax bill.  

• Your friend will be liable for Capital Gains Tax based on the delta of the house when she bought it vs what it is worth today.  
• If the market value is above the SDLT threshold then you need to pay it.
• If your friend dies within 7 years then the 'gift' can be liable to inheritance tax, and that is out of your pocket if your friend doesn't have more estate to cover that.

somewhat of an inaccurate comment
CGT
friend would be the seller. The property (appears) is their main home for the entire time they owned and lived there, so NO CGT AT ALL for the seller
SDLT
SDLT is not based on market value, it is based on the price physically paid (in this case)
More relevantly, as OP (presumably) already owns a property of their own, it would be an additional property purchase for them and so they would pay higher rate  SDLT on the purchase price (assuming that is more than £40,000 as that is the higher rate threshold)
IHT
somewhat unlikely that the seller has an estate of a size that IHT will be a risk and if they did we don't know who else stands to inherit and therefore the chances that the estate would be unable to pay IHT from its residue
Discount
The discount on the market value would, as others have said, be classed as deprivation of capital and should impact future means tested benefits claimed by the seller. 

[Deleted User]

Just get her to remortgage to yourself with a private interest only mortgage secured on the house with a term that effectively means its payable on death. Your mortgage should be the exact amount of the old mortgage so no one can suggest you are taking advantage of her. You therefore get your loan repaid with rolled up interest from her estate and she gets to stay in her house paying nothing more.