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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:
WeAreTheHeroes · 14/06/2022 06:46

JuneOsborne · 14/06/2022 06:39

Is it because of the cladding issue perhaps?

In which case the OP won't be able to get a mortgage as affected flats are being valued at £nil until the issues are resolved.

RaaRaaLaLaLa · 14/06/2022 06:50

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

parietal · 14/06/2022 07:07

London flats are generally fairly easy to value. If you know the number of square meters you multiply by local value and the adjust for any quirks (roof garden / noisy curry house downstairs etc).

So flat of 70sqm x £10,000 per sqm local value is worth £700,000. And if you buy that for £350,000 then HMRC will definitely notice. The other half of the value is a gift that comes under the gift rules described above.

teelizzy · 14/06/2022 07:10

OP, it's not illegal to sell a property at an undervalue but there are tax consequences. There are three taxes:

  • Stamp duty - paid by the buyer
  • Capital gains tax - paid by the seller
  • Inheritance tax - possibly payable on gifts by the seller

The biggest lump here is capital gains tax. As you are a connected party he will be treated as selling to you at market value no matter what the actual amount you pay. So tax will be due at 28% or more likely the higher rate of 38% on the difference between current market value and the value of the flat when he inherited it, plus the costs of any enhancements/improvements in the years since.

Given what you have said I think it's important to establish how he thinks he is going to settle that tax bill eg does he expect you to pay it?

I would also ensure that you have your own solicitor and he has his.

HairyMcLarie · 14/06/2022 07:15

Sales at a significant undervalue are regularly identified and checked that it's not a way of avoiding stamp duty on the full amount. You will be required to pay SD on the market value if they do so as its seen as a way of tax evasion.
For example a buyer and seller could agree to 'officially' buy a house at half market value to avoid SD while agreeing another payment of the difference 'off books' and this is what they would looking for so expect HMRC to be in contact.

GoldenSongbird · 14/06/2022 07:21

Speak to a conveyancing solicitor and a tax specialist. You want their advice in writing so you can prove you sought legal and tax advice on the purchase.

You asked how HMRC would know the value - from information on the form; from information being flagged as suspicious; also (if your DF has a company) from doing a random check/audit.

teelizzy · 14/06/2022 07:21

I'd also add that CGT on property that's not your main home has to be paid within 30 days of a transaction. HMRC do follow up on this.

There are also insolvency law considerations- sometimes people try to avoid creditors by selling at an undervalue and if they subsequently go bankrupt then the same can be set aside - you really don't want that.

However if you instruct a solicitor and make sure they know the circumstances all these things can be dealt with so that you shouldn't have any issues further down the line.

123ZYX · 14/06/2022 07:35

Do you think there's a risk of major repair works being needed for your flat and/ or the block, and he wants to pass ownership to you before he needs to pay it?

doorbore · 14/06/2022 07:36

It would make more sense for him to sell it at market value to someone else & give you the profits after he's paid CGT.

GoldenSongbird · 14/06/2022 07:45

Is he selling it to you with a sitting tenant?
Your DF may just be having a change if heart as he gets older.
However you have to be aware of whether there are structural issues or not; any large or ongoing maintenance bills/issues; terms of the tenancy and any ongoing disputes.

GoldenSongbird · 14/06/2022 07:47

Also have a look at nearby planning applications to see if there are any proposals that could adversely impact the future value of the property eg over development; retail premises; commercial premises with high risk thresholds, etc.

Plantstrees · 14/06/2022 08:19

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.

This advice is just wrong!

Definitelynotgoldenchild · 14/06/2022 08:20

Do you think there's a risk of major repair works being needed for your flat and/ or the block, and he wants to pass ownership to you before he needs to pay it
This!

Does this flat have cladding that needs to be removed?
I would definitely look this gift horse in the mouth!

Sswhinesthebest · 14/06/2022 08:30

If you do it with legal advice then, hopefully you’ll be ok. Even if you do have to pat CGT then it’s a good deal.

Toohottt · 14/06/2022 08:32

Sounds like you’re correct to be cynical OP. Do your homework and make a plan to be able to pay the IHT if DF should die within 7 years and it could all work out really well…

What do you think of the area? It would be an awesome deposit even if you didn’t want to live in it!

Pollydonia · 14/06/2022 08:37

Of it looks too good to be true it invariably is too good to be true.

Plantstrees · 14/06/2022 08:39

Now having read the whole thread I think you are getting too much bad information on here.

You will pay stamp duty on the price you pay - £300,000.

Your father will have to declare the sale on his tax return and pay Capital Gains Tax. At this point HMRC may dispute the price of sale unless your father has declared it as a gift - of course he may get away with not declaring the gift as HMRC don't always check but at this level of undervalue it may be obvious as they ask for the address of the property etc. Like others have said, there may be a good reason for declaring this value.

Anyway, assuming the gift is declared or discovered, if he lives more than 7 years after the gift (of the balance of value) then there is no further tax to pay.

If he dies within 7 years you may have to pay tax on the difference between the value at the time it was sold to you and the market value. BUT ONLY IF ALL HIS LIFETIME GIFTS EXCEEDED THE NIL RATE BAND OF £325,000, which if yours is the only gift it will not. Even then, as the gift was property, you will have plenty of time to pay it.

To clarify some other posts on here, there is no Capital Gains Tax when someone dies.

It is good Inheritance Tax planning to give gifts during you lifetime so there is nothing wrong with this approach. He has probably been advised to do this by his financial advisors to reduce his ultimate tax bill and make sure you get some of your inheritance. If he lives for 7 years all is good. Why is everyone so suspicious?

Blimeyherewegoagain · 14/06/2022 08:43

It’s not you that would be liable for inheritance tax OP, or any other tax if he dies in 7 years, it’s HIS estate that would pay.

Twiglets1 · 14/06/2022 08:44

onlyinSpain · 13/06/2022 18:16

Is the lease very short?

I don't know

You do need to find out about the length of the lease as a short lease (under 80 years) makes a property worth much less as they are expensive to renew under 80 years. Your solicitor will definitely check this if you do buy the flat

GoldenSongbird · 14/06/2022 08:48

Plantstrees · 14/06/2022 08:39

Now having read the whole thread I think you are getting too much bad information on here.

You will pay stamp duty on the price you pay - £300,000.

Your father will have to declare the sale on his tax return and pay Capital Gains Tax. At this point HMRC may dispute the price of sale unless your father has declared it as a gift - of course he may get away with not declaring the gift as HMRC don't always check but at this level of undervalue it may be obvious as they ask for the address of the property etc. Like others have said, there may be a good reason for declaring this value.

Anyway, assuming the gift is declared or discovered, if he lives more than 7 years after the gift (of the balance of value) then there is no further tax to pay.

If he dies within 7 years you may have to pay tax on the difference between the value at the time it was sold to you and the market value. BUT ONLY IF ALL HIS LIFETIME GIFTS EXCEEDED THE NIL RATE BAND OF £325,000, which if yours is the only gift it will not. Even then, as the gift was property, you will have plenty of time to pay it.

To clarify some other posts on here, there is no Capital Gains Tax when someone dies.

It is good Inheritance Tax planning to give gifts during you lifetime so there is nothing wrong with this approach. He has probably been advised to do this by his financial advisors to reduce his ultimate tax bill and make sure you get some of your inheritance. If he lives for 7 years all is good. Why is everyone so suspicious?

There's a difference between being suspicious and doing due diligence. Everyone should do their own due diligence regarding any large purchase regardless of whether the seller is a relative or not. OP's DF is not a solicitor or a tax consultant or a financial adviser - and even if he was - he isn't OP's impartial professional advisor. OP needs to make her own enquiries with professionals so she can be clear what she is doing and make an informed decision.

RoseAndRose · 14/06/2022 08:53

You need to do the same checks as you would if you were buying the property through choice:

  • if leasehold, length of remaining lease
  • structural survey - any hidden horrors, particularly cladding disputes
  • searches to see whether there's new development in the area that could affect desirability
  • level of service charges and ground rent
If he's offloading the property, you need to be sure it's not going to be a money pit
sorryiasked · 14/06/2022 08:53

All of the problems are his not yours.
Make sure the lease has a decent length in it and make sure you use a conveyancing solicitor.

Plantstrees · 14/06/2022 08:55

@GoldenSongbird I agree that she should use a solicitor and take professional advice if she is in any doubt, but I find it very sad that people are so suspicious of a family member offering a gift! This is a relatively straightforward and sensible decision on his part so I think there is no need for all the negativity.

caringcarer · 14/06/2022 08:59

I am going to sell my youngest son a btl I own with very small mortgage left under £20k. I will have to pay cgt on full price of house. DS won't have to pay stamp duty as he is a first time buyer. I am doing it to help him get on housing ladder. I am paying for it to be done up, having new kitchen and downstairs loo put in as DS won't be able to afford those jobs. House will be worth about £180k will sell to son for £75k because that is mortgage he can comfortably afford to pay. I am putting in my will youngest son will inherit £100k less than his 2 siblings. If your Dad is offering to do this for you grab it with both hands. If you choose to sell further down the line that is entirely up to you as will be your home. There is no tax advantage for your Dad btw.

GoldenSongbird · 14/06/2022 09:05

Plantstrees · 14/06/2022 08:55

@GoldenSongbird I agree that she should use a solicitor and take professional advice if she is in any doubt, but I find it very sad that people are so suspicious of a family member offering a gift! This is a relatively straightforward and sensible decision on his part so I think there is no need for all the negativity.

But just because it may be sensible on his part - doesn't mean that it's sensible for the OP. Posters are obviously responding to the fact that the OP was negative about her DF and their relationship too.
Even with no ill intent, her DF could still inadvertently be selling on problems to the OP. That's why it's important she does her due diligence and makes her own decision.