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Tony Tax
Tony Tax, Tax Consultant
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If parents sell their second home, way below the purchase price

Resolved Question:

If parents sell their second home, way below the purchase price and current evaluation (62,000 below), to a son. Is this gain for the son regarded as a gift and therefore possibly taxable. The house is not being used as the sons main residence but as a business asset, as it is being rented out.
Submitted: 1 year ago.
Category: UK Tax
Expert:  Tony Tax replied 1 year ago.
Hi.

As the parents and their son are "connected persons" for tax purposes, any sale of the property from the parents to the son will be deemed to have taken place at the open market value regardless of the private arrangment with potential Capital Gains Tax consequences for the parents. The gain will be dependent on several factors including whether the property was ever the parents main home. Take a look at HS283 for more information.

In addition, the difference between the open market value and the actual sale price will be treated as a gift for Inheritance Tax purposes so if the parents or one of them dies within seven years of making the gift, the value of the gift or half of it will be included in the deceased parents estate.

I hope this helps but let me know if you have any further questions.
Customer: replied 1 year ago.


Thank you for your quick reply.


In short, he has no tax to pay on the gift, unless the parents die within 7 years and it is then include in the inheritance tax calculations


Can I just ask that if the house is now sold on again, because this house is not his main residence, would he be liable to pay capital gains tax from the profits made from the 'favourable purchase price' to the new sale purchase price.


Many Thanks

Expert:  Tony Tax replied 1 year ago.

The son wont have any IHT to pay as that is a liability of the deceased estate. However, take a look here to see who pays IHT in different circumstances.

The son's cost for CGT will be the open market value when he bought it at a discount, not the price he paid for the property. So. it the property is sold for more than the open market value at the time it was sold to him plus £10,900 (the annual CGT exemption) then there will be a taxable gain.

Tony Tax, Tax Consultant
Category: UK Tax
Satisfied Customers: 14203
Experience: Inc Tax, CGT, Corp Tax, IHT, VAT.
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