Is this tax evasion or tax avoidance?

[WishYouWereMine]

A friend of mine is about to sell a house he was renting out to the friend of a family member.

The purchaser has suggested that they buy the house at a reduced price near the price my friend initially paid for the house and then pays the difference separate to the house transaction eg.

House is worth say £200k
House is ‘purchased’ for £150k through solicitors
Purchaser then pays £50k to the seller separately, outside of solicitors, stating it is for the contents.

This then reduces the CGT exposure.

This feels extremely dodgy to me and to the seller (and he has refused to go ahead with any sort of deal like this and the sale has fallen through as a result).

However purchaser is adamant this is simply being tax efficient.

How dodgy is it?

Thanks in advance!

Nah. Never get dragged into someone else's rackety tax-minimisation hoo-ha. You could so easily get stiffed in this example.

This would also reduce the purchaser's stamp duty liability. It would be perfectly legal if the contents were actually worth £50k, although it would be safer with both transactions being done via a solicitor.

However, I imagine the contents are actually worth significantly less than £50k in which case this would be illegal tax evasion for both purchaser and seller. Plus also running the risk of the purchaser not actually paying the £50k but still legally owning the house.

To be honest, any decent solicitor will refuse to do this.

Well, clearly if the seller didn’t declare the extra that would be tax avoidance. When I bought my house we paid a fair bit extra for contents and it all had to be listed out separately with prices given for each item, and the solicitors queried anything that looked out of line.

But also - isn’t the risk in this situation that the purchaser doesn’t pay the extra? Once the house is sold how would the seller enforce this?

CGT is based on market value not what it is sold for. It is tax evasion and carries a very heavy penalty unless you are a very rich political donor.

Sorry - I was posting late at night. I meant to say evasion here!

CGT will be due on the market value not the reduced price offered to a friend. There will be huge penalties if found out

The solicitor should flag this

This.

CGT is only based on market value in certain specific circumstances, which don't appear to be here.

How dodgy is it?

In short, very. It is clear tax evasion, not even a grey area

Could you give any more information on the specific circumstances?
I’ve tried to explain that the CGT would be due on the market value but won’t want to look like a wally if this would not be the case.

Thank you.

Thanks everyone for confirming what we suspected to be true!

Where the parties are connected.
https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg14580

We have just been asked by our solicitor to confirm that we are not receiving any money for any of the contents - if we were they would want details of how much/what for! Any decent solicitor will check this…

The purchaser is “a friend of a family member”. That is not a connected person.