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What tax implications if I buy my mothers house at 25% below market value?


I would like to buy my mothers house which is now too large for her and it requires modernising which would be too daunting for her. She has offered to sell it to me for about 75% (£365,000) of the true market value. Are there any tax implications that we should consider before proceeding.


Ian Says

There are a number of tax considerations.  Firstly, stamp duty is payable on the transfer so ensure you have funds for this.  On selling to a relative market value is substituted as far as capital gains tax is concerned.  If the property is your mother's PPR and has been throughout, then the gain should be tax free and you will take over the property at market value for capital gains tax purposes.  If the property has not been the PPR throughout, then you will need to calculate the potential capital gains tax charge before proceeding.


I assume your mother will not be living in the property after selling it to you - if she is, then the pre-owned assets rules may apply and she may be liable to a tax charge for using the property.


For IHT purposes, the undervalue gifted is a potentially exempt transfer and this amount will fall out of your mother's estate if she survives for seven years.

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