What are the tax implications of buying a house off my father at below market value?

Published by on 19 January 2016.
Last updated on 19 January 2016


Are we allowed to do this and would there be any tax implications? For example, would stamp duty be based on what I pay my father, or what the house is actually worth?"



"It is perfectly acceptable for your father to sell this house to you in the way you suggest. However, you should keep good records. As your father sold assets worth more than £44,000, then he should report the sale to HMRC by completing a self-assessment tax return even if he didn’t suffer a capital gain.

If there is a capital gain on the house, it will be calculated on its market value at the date of transfer to you and not at the amount you paid for it less the probate value.This is because it comes under the rules of sale for connected parties and was inherited from a death estate.

You will also need to consider inheritance tax (IHT). Gifts from one person to are treated as ‘potentially exempt transfers’. This means the gift only becomes totally free of IHT if the giver lives for seven years. If the giver dies before then, however, you may be eligible for a reduction in IHT depending on when death occurs.

In your case because the transfer of the house to you is to pay off a debt, then the money used to pay off the debt will not be subject to the rules of IHT; the rest will be.

The sale of the house is subject to stamp duty land tax. Because you paid less than £125,000, there is no amount to pay. However, you will still be required to report this to HMRC.

As your father inherited the house, you could also consider changing the way you take ownership. Provided you haven’t paid your contribution to your father for the house, there is likely to be scope to rewrite the will by means of a deed of variation and redirect a share in the house to you. The will must be rewritten within two years of the date of death, all beneficiaries must agree and it must show compliance with section 142 of the Inheritance Tax Act 1984.

This would avoid a potentially exempt transfer and therefore the possibility of paying IHT, as the house will have been passed to you directly from the will and your father will not have been deemed to have made a transfer to you. Then there would be no need for your father to notify HMRC of the sale of the house to you."

David Wesley-Yates is a chartered tax adviser at Red & Black Accountancy.