Tax implications of buying parents house below market value

polymooger

Annisele said:

Equity release? They might be tight on the numbers though.

(My own view of equity release is that it's a last resort, and most people shouldn't touch it with a bargepole. But where it does work, it's great.)

That has been looked into and we have some numbers for that, but at this stage it's a (much) lesser preferred option.

saajan_12

Disagree with some of the posts. 
CGT is based on the market value - assumed to be the purchase price for an arms length transaction, but assessed separately as you're buying from linked persons. Your parents' CGT is zero as it was their main residence. Your CGT would start at 110k (though this value would need to be proved) and go upto your eventual sale price. 

SDLT is based on the consideration, so 0 if its entirely a gift. If you pay any cash or take over a mortgage, this would be consideration so you pay additional rate stamp duty on the £89k. 

IHT: The house would be counted for inheritance purposes, as they maintain an interest by living there. However sounds like their estate will be small enough to not reach the taxable threshold. 

oldbikebloke

2bFrank said:

If you are renting it out you will be liable for CGT on the profit you sell the house for. so if you are buying it for £89k then in the future sell it for £155k the you will be liable for the difference (£66k), however there are rules regarding buying of family members that can make you liable for the full sale value, that you might need to look into.

OP asks for tax advice, so no point you giving a wrong answer

CGT will be based on the difference between what it sells for and its market value at the point OP acquires it.
As OP explains, this is a "connected person" transaction between himself and his parents, so market value, not discounted price paid, is what counts as the "cost" price for CGT

the discount is, in tax terms, a gift from parents to son and therefore that amount remains within their estate for inheritance tax purposes. Obviously as OP has paid cash for taking ownership, the house itself is not part of their estate since they have received money for selling it, so that money (or what is left of it), will be part of their estate on death. The discount however does not go away, and will always be part of that estate unless they move out of the property, at which point the 7 year rule clock will start to apply for inheritance tax .

oldbikebloke

AdrianC said:

SDLT will be assessed on the full market value, since it's a transaction below market value between connected persons (close family members).

do you have a link for that?

AFAIK connected persons in relation to SDLT relates only to a purchase by a company (non natural person) and whether the company is controlled by a connected person 

the discount is a gift, the chargeable consideration will be the actual price paid in money, not market value 
https://www.gov.uk/hmrc-internal-manuals/stamp-duty-land-tax-manual/sdltm00530