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Original poster

Buying a house for half its real value

59 replies

onlyinSpain · 13/06/2022 17:00

My father inherited a flat from his parents decades ago. He has rented it to private tenants for years.

He lives in a different house and has a third house in a touristy part of England that he sometimes goes to stay in. The flat is in London and I am currently renting there and my job is here too.

We are not close (long story) and I didn't see him for most of time of my childhood. But he has contacted me to say he wants to sell me the inherited flat - and wants to do so at less than half what it would get on the open market. Eg 300k rather than 600k.

He is being very cagey about the reasons why and (long story short) I'm not sure it's entirely out of concern for me. And if I ask him, he won't tell me the truth : he has a long history of not being straight.

But of course it's tempting to say yes because otherwise I'm never going to get on the housing ladder and once it's mine, it's mine, right?

Is there any reason eg inheritance tax or capital gains tax that he would want to offload this house? I just can't work out why out of the blue he wants to do this.

And will I get into trouble at any point for eg avoidance of stamp duty - or will this come back and bite me in the bum if I sell it on the open market in a few years time?

OP posts:
Original poster
onlyinSpain · 13/06/2022 17:07

Ps. I've called it a house and flat: it's like a maisonette flat with a two different levels and a garden so I think of it as a house really but officially I think it's a flat!

OP posts:
EmmaH2022 · 13/06/2022 17:11

He will have a lower CGT bill to pay, I think?
I don't know what happens in stamp duty though.

Noisyprat · 13/06/2022 17:19

He can but for tax purposes the market value figures will be used. So he will still have a cgt bill. Must admit not sure what happens about stamp duty, I expect the same thing.

ClaudiaWankleman · 13/06/2022 17:25

It is effectively a £300k gift to you. If your DF dies within 7 years you'll be liable for capital gains tax at 28%, less an amount depending on when he passed, i.e a maximum of £84k.

For stamp duty it is a duty on the price paid, which would be approx £14k assuming you already own a property.

AbsolutelyLoveIy · 13/06/2022 17:28

Well he’s trying to dodge inheritance/ capital gains tax however this is why so much paperwork is involved - sale would be stopped if it seemed unduly cheap.

PatriciaHolm · 13/06/2022 17:40

Is he in a relationship that might be ending and thinks this is a good way to reduce the amount he has to give his partner? It obviously reduces his share too but people can be vindictive.

If there are private tenants, they may be hard to evict - is he having problems with them?

Is he about to go bankrupt and desperately needs cash? (the transaction could be overturned if so)

titchy · 13/06/2022 17:42

Is the lease very short?

toooldtocarewhoknows · 13/06/2022 17:49

Once it's signed over to you it's yours.

However, If he were to die within 7 years of you buying it the HMRC would look at the date it was sold, calculate an average market price and calculate inheritance tax accordingly on the remaining portion.

He'll get £325k personal tax allowance before inheritance tax is applied. He'll also get £175k allowance for passing on his main property to children.

Is he in good health? Can his estate afford the inheritance tax bill? If not this bill may fall to you. So if you are going to pay half the market value, the other half would be liable for inheritance tax in the event of his death and if there are not enough assets to cover the debt.

Another thing to be aware of is if he is leaving his remaining assets to say his wife. She can say no, I'm not paying the inheritance bill for this property. It then passes to you.

Quite a few things to consider and chat to your father about.

toooldtocarewhoknows · 13/06/2022 17:54

Stamp duty will be paid on your portion, the half of the value of the property.

His portion (the part he's not getting the full market rate for) would be deemed as a gift so no stamp duty to pay.

In the eyes of the law the missing half is a gift from him to you. It's this gift that's subject to inheritance tax if he dies within 7 years.

Please do this officially through a conveyancing solicitor. Don't take risks with this.

Original poster
onlyinSpain · 13/06/2022 18:14

Thanks for the responses. If I've understood you all correctly I would only pay stamp duty on the price I pay? So if I pay 300k (I've just googled and), I wouldn't pay ANY stamp duty as I'm a first time buyer? Is that correct? (Hurray if so!)

He'll get £325k personal tax allowance before inheritance tax is applied. He'll also get £175k allowance for passing on his main property to children.

It's not his main property, he hasn't lived in it for decades and even then it was briefly. He's lived in his own place for years and rented this London flat out. He's also got a second home. Does any of that make a difference tax wise?
*
Is he in good health? Can his estate afford the inheritance tax bill? If not this bill may fall to you. So if you are going to pay half the market value, the other half would be liable for inheritance tax in the event of his death and if there are not enough assets to cover the debt. *

Hmm. Well he's in his early 70s but nothing health wise that I know of. But if he died, presumably we can sell his second home which is mortgage free and worth about 800k and that would pay any inheritance tax that his estate would be liable for??

Another thing to be aware of is if he is leaving his remaining assets to say his wife. She can say no, I'm not paying the inheritance bill for this property. It then passes to you.

Ah. So she might say she doesn't want the second home sold to pay an inheritance tax bill? If that happens how much do I suddenly have to find?!

OP posts:
Original poster
onlyinSpain · 13/06/2022 18:15

*Is he in a relationship that might be ending and thinks this is a good way to reduce the amount he has to give his partner? It obviously reduces his share too but people can be vindictive.

If there are private tenants, they may be hard to evict - is he having problems with them?

Is he about to go bankrupt and desperately needs cash? (the transaction could be overturned if so)*

I don't think any of these apply.

OP posts:
Original poster
onlyinSpain · 13/06/2022 18:16

Is the lease very short?

I don't know

OP posts:
Octomore · 13/06/2022 18:16

Noisyprat · 13/06/2022 17:19

He can but for tax purposes the market value figures will be used. So he will still have a cgt bill. Must admit not sure what happens about stamp duty, I expect the same thing.

This. He will be taxed as if he's sold it for full market value.

Original poster
onlyinSpain · 13/06/2022 18:17

I'm still wondering what the catch is. Why has he suddenly decided to effectively give me £300k when he's had little to do with me and doesn't even appear to like me very much or approve of my career choice etc? He's not really a very nice person. I would be delighted if it's catch free but I bet it's not.

OP posts:
Original poster
onlyinSpain · 13/06/2022 18:20

This. He will be taxed as if he's sold it for full market value.

But how would they (who is they, is it HMRC) know its true value? Presumably they can't check the value of every property sold matches up with those in the rest of the street or area? Is he relying on selling it for half its value and nobody dobbing him in? He's not very nice so suspect he won't get away with that - who would people dob him into anyway? HMRC? And what happens to me if he gets done for capital gains tax evasion and I've bought the flat for 300k?

OP posts:
Octomore · 13/06/2022 18:27

HMRC use values if they need to.

They do it when companies try to do transactions at undervalued too. It's not exactly a rare form of fax evasion.

Octomore · 13/06/2022 18:28

valueRs

EmmaH2022 · 13/06/2022 18:34

onlyinSpain · 13/06/2022 18:20

This. He will be taxed as if he's sold it for full market value.

But how would they (who is they, is it HMRC) know its true value? Presumably they can't check the value of every property sold matches up with those in the rest of the street or area? Is he relying on selling it for half its value and nobody dobbing him in? He's not very nice so suspect he won't get away with that - who would people dob him into anyway? HMRC? And what happens to me if he gets done for capital gains tax evasion and I've bought the flat for 300k?

When you fill in the gain form, it asks you what you've sold it for.

are you thinking he'd not fill in the form?

Original poster
onlyinSpain · 13/06/2022 19:44

*When you fill in the gain form, it asks you what you've sold it for.

are you thinking he'd not fill in the form?*

What if he fills in the form, but he fills in that he's sold it for 300k? Then how would be HMRC know that on the open market it was worth 600k - and does it even matter? Is he somehow defrauding anyone? And would this impact on me?

OP posts:
Octomore · 13/06/2022 20:19

Is he somehow defrauding anyone?

Yes, it's tax evasion - a crime. I'm not sure how more clearly you need it explaining?

It's a connected party sale, so legally he will owe capital gains tax as if he's sold it for market value. He can lie and hope he doesn't get caught, but he'd be commiting a crime.

Tbh, I imagine your conveyancer will be under a professional/legal duty to report it (just like if they have money laundering suspicions). Unless you don't plan to use a conveyancer?

EmmaH2022 · 13/06/2022 20:28

onlyinSpain · 13/06/2022 19:44

*When you fill in the gain form, it asks you what you've sold it for.

are you thinking he'd not fill in the form?*

What if he fills in the form, but he fills in that he's sold it for 300k? Then how would be HMRC know that on the open market it was worth 600k - and does it even matter? Is he somehow defrauding anyone? And would this impact on me?

I think there's a section that asks if you have reduced the price for any reason. So he'd have to say that to be on the right side of the law.

MadeForThis · 13/06/2022 20:32

If he defrauds HMRC that's on him. You aren't liable for him breaking the law.

WeLoveYouMissHanigan · 14/06/2022 06:33

onlyinSpain · 13/06/2022 19:44

*When you fill in the gain form, it asks you what you've sold it for.

are you thinking he'd not fill in the form?*

What if he fills in the form, but he fills in that he's sold it for 300k? Then how would be HMRC know that on the open market it was worth 600k - and does it even matter? Is he somehow defrauding anyone? And would this impact on me?

BECAUSE THEY DO CHECK
YOU CANNOT GET AWAY WITH IT

obviously half the country would be selling their parents homes to each other for a pittance otherwise while granny goes off to a home.

JuneOsborne · 14/06/2022 06:39

Is it because of the cladding issue perhaps?

WeAreTheHeroes · 14/06/2022 06:45

Worst case scenario for you is you buy the place and he dies within 7 years and you get the IT bill. You will not be expected to pay the bill overnight, but you might have to sell in order to pay it. In effect you will then be paying a pretty big chunk of what is really your father's tax liability.

I would be concerned about being complicit in his tax fraud.

You're right to be suspicious of his motives. However attractive it seems on the face of it, do you want to be in a position where you are beholden to a degree to someone you don't much like or trust?