Buying Family Home at Below Market Value - Stamp Duty

ed603em

My wife and I will be buying my family’s home from my mum, who will be moving out and living elsewhere.

We believe its market value is in the region of £575k and my mum has agreed to sell it to us for £460k. The difference between market value and purchase price is a gift.

Ive looked at similar threads on here and haven’t found any definitive answers - should we expect to pay SDLT on the value (£575k) or on the purchase price (£460k)?

Bookworm105

SDLT is always based on the "chargeable consideration" given which in your case is the straightforward change of ownership of a property in return for cash money. The actual price paid is therefore the basis for SDLT 

note if mother expects you to also pay her legal fees and EA fees on top of the £460k price, those additional costs must be added on to the 460k and SDLT will be paid on combined total. If she doesn't then you'll pay SDLT on 460.
SDLTM03700 - Scope: How much is chargeable: General guidance on FA03/S50 and FA03/SCH4 - HMRC internal manual - GOV.UK


The difference between 460 and your idea of "market value" is a gift. Gifts are outside the scope of SDLT.
SDLTM00530 - Scope: What is chargeable: Exempt transactions: Gifts of property FA03/SCH3/PARA1 - HMRC internal manual - GOV.UK


As an aside, that gift is inside the scope of inheritance tax for mother's estate as it is effectively the same as a cash lump sum so falls under the IHT gift rules.


In respect of SDLT market value only applies where the purchaser is a company, not a real person.
I also assume the property appears to have been mother's only/main residence for her entire ownership therefore the rules around sales to connected persons (relatives) at below market value for Capital Gains Tax can be ignored

Olinda99

This is correct. In fact, as an extreme example, if she gifted you the whole house there would be no SDLT to.pay

theartfullodger

As long as the "gift" is suitably documented (make sure you keep eberthing),  HMRC (obviously) have the power to tax based on actual market value if they thing something dodgy is being attempted..

user1977

theartfullodger said:

As long as the "gift" is suitably documented (make sure you keep eberthing),  HMRC (obviously) have the power to tax based on actual market value if they thing something dodgy is being attempted..

Which tax are you talking about? As explained above, the market value doesn’t come into the SDLT (or LBTT / LTT) calculation, only the actual price paid. Capital Gains Tax is different, but it sounds like CGT wouldn’t be due anyway if the house is always the owners’ main residence.

Bookworm105

theartfullodger said:

As long as the "gift" is suitably documented (make sure you keep eberthing),  HMRC (obviously) have the power to tax based on actual market value if they thing something dodgy is being attempted..

and your evidence in respect of SDLT for yet another of your wild statements is .... ?

Markmywords

someone once said that selling below market price causes problems later on.

SDLT_Geek

ed603em said:

My wife and I will be buying my family’s home from my mum, who will be moving out and living elsewhere.

We believe its market value is in the region of £575k and my mum has agreed to sell it to us for £460k. The difference between market value and purchase price is a gift.

Ive looked at similar threads on here and haven’t found any definitive answers - should we expect to pay SDLT on the value (£575k) or on the purchase price (£460k)?

You do not say whether you will be borrowing.  If so, your lender is likely to have their own requirements as to how the transaction is structured.  Some mortgage products require the property to be transferred for its full market value, in which case the SDLT treatment would follow the documentation.

These issues are discussed in the article here: https://www.blakemorgan.co.uk/bank-of-mum-and-dad-concessionary-purchases/

ed603em

Thanks thanks for everyone’s help with this. Yes we will need to borrow. Our current fixed rate is with Santander with another two years left to go. We’ve got £230k left on a house worth approximately £350k which we will be selling.

It feels like it is going to be quite complex! I will ask our mortgage broker about Santander’s requirements for these types of situations! Thanks again, do appreciate the help