CGT - Property bought at below value

vouch0r

Hi There,
Just trying to understand CGT more as a family member (who owns a house already) is going to buy a house in Scotland directly through the seller which is a friend of mine who is selling it due to probate/debt to be paid.

We are looking to settle on a value approx 80k  but they have recieved 110k valuation but they are looking to sell it very quickly due to the interest on all the debts and the beneficiaries looking to get their money asap.

I understand in Scotland we need to pay LBTT as a second dwelling on purchase its just the CGT bit im a little confused about. If we sell a year or two down the line - do we pay CGT based on the real value 110k or the purchased value 80k? how does it work when you buy something for alot less than its actually worth?

there is also a question in the CGT calculator that states 'Did you buy the property for less than it was worth because the seller wanted to help you?', we are helping each other but not sure how this affects the calculation!

Any help would be great, thank you

Jeremy535897

See https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg14480p et seq.

oldbikebloke

there is no such thing as 110k "real value", the value is what it actually sells for as that is the real evidence of market value .
The real question is are the parties "connected persons" which means:

• Spouse or civil partner;
• Relatives (= brother, sister, ancestor or lineal descendant) and spouses or civil partners of relatives;
• Relatives of spouse or of civil partner and spouses or civil partners of those relatives.

(it does not include nephews, nieces, uncles and aunts)

in the context of your question , the purchaser is buying from someone who appears to be a stranger to them, and therefore it is an "arm's length" transaction where your friend is simply "getting a good deal".
Your friend's cost price for their eventual CGT will be what they actually paid: 80k. There is no possibility whatsoever that they could claim the notional cost was 110k since if another buyer came along tomorrow and offered 81k the seller may switch to them as there is no "connection" that makes the seller likely to behave in a financially irrational (emotionally) way in favour of your friend 

In the same way, the person selling now has positive proof for probate purposes of the value of the estate since it was an arm's length sale. The fact they sold "cheap" to sell "quick" is their decision - all they have done is kicked the tax football down the street a bit, as rather than potentially face inheritance tax on a "high" value estate, they are making your friend into the one who will pay tax as CGT on a "low" cost price. That is life.

Grumpy_chap

What the OP suggests could not possibly work as it would be used by everyone to avoid all CGT.

xylophone

The exors have a duty to the beneficiaries  - are the beneficiaries aware that the property has not been offered on the open market? 

oldbikebloke

Grumpy_chap said:

What the OP suggests could not possibly work as it would be used by everyone to avoid all CGT.

rubbish

vouch0r

xylophone said:

The exors have a duty to the beneficiaries  - are the beneficiaries aware that the property has not been offered on the open market? 

Yes all three have agreed to the sale so no issues on that front. Really appreciate the help on this and definately understand it more now.

Thanks all.