CGT on undervalue sale

[SukhGill]

Hello All,

I need some advice, if I sell my house to a member of the family at lower rate than the actual value. Say for example the house value is 300k and I sell the property @ 200k what are the TAX implications of doing this. I’ve been told that I would have to pay TAX on the 100k but also been told I can use the 7-year rule to exempt the TAX. As you can probably know I’m not very clued up on these maters your assistance would be much appreciated.

Thanks, Sukh

[Yardleystar]

If you are selling to a "connected person" whatever the sale price, the market value will be taken as the sale price for the transaction and all taxes computed against this figure.

If you are gifting some or all of the property to a "connected person", this can be a potetially exempt transfer for inheritance tax purposes under some circumstances. This is one for a solicitor really as it would normally tied up with a trust or a will.

As with all tax avoidance schemes, sometimes its worth taking a minute to consider if the solution sounds too good to be true. If this scheme worked everyone would be doing it.......especially accountants

[Tax Accountant]

First of all you will be deemed to have sold the property to your relative at full open market value of £300,000 and you will be taxed to Capital gains Tax by reference to this. However, if you have been using the house as your only or main residence since the purchase, all yours are exempted from CGT.

Your relative will be deemed to have acquired the property for the full market value of £300,000 for his future capital Gains Tax purposes.

Secondly, you will be deemed to have made a Potentially Exempt Transfer(commonly known as a PET) in the sum of £100,000. If you die within 7 years of the gift, this amount will still be included in your estate and taxed to Inheritance Tax if your estate value exceeds the current nil rate band of £275,000. There is a taper relief if you die between 4 to 7 years after the gift.

Hope this helps.