Hello,

Can a homeowner sell a home well below market value? If the mortgage is paid off? Is there a minimum?

Thanks.

Hi.

Who is ibeing sold to please?

HB

I think selling someone a house at well below what it's worth could count as a gift for IHT purposes, but to add to my previous post, please tell us more.

ETA I've retitled your thread for clarity and moved it to the General Legal forum.

HB

It's your property, unless you sell it for a pound you won't have to worry.

Let's say the property is worth £300k and you sell it for £200k, I don't think anyone can stop you.

I bought a property many moons ago at half price the next door because it was a complete wreck.

Nobody questioned the transaction.

I think selling someone a house at well below what it's worth could count as a gift for IHT purposes, but to add to my previous post, please tell us more.

 

HB

HB is correct. King might be correct dependant on why the transaction at an undervalue is happening.

It's your property, unless you sell it for a pound you won't have to worry.

Let's say the property is worth £300k and you sell it for £200k, I don't think anyone can stop you.

I bought a property many moons ago at half price the next door because it was a complete wreck.

Nobody questioned the transaction.

If the vendor and purchaser are connected, and the transaction is designed to avoid tax, it will be subject to scrutiny.

As others have said if it's your house and there's no mortgage you can sell for whatever you like. HMRC can't tell you what price you can sell your house for but if they believe you have sold the house below market price they can treat the difference between market price and what you sold it for as gift for calculating Inheritance Tax. What's the reason for the question? How much below market price? What's the reason for wanting to sell below market price?

The "market value" isn't a precise number anyway until an (unconnected) buyer comes along and actually makes an offer. Until someone makes an offer "market value" is only what someone predicts a buyer will pay. So if you are only talking about a small difference between what you want to sell for and what someone (estate agent?) thinks is the market value then it's probably not significant.

I bought a property many moons ago at half price the next door because it was a complete wreck.

When you say 'half price', half the price of what? Of what it would have been worth in good condition? If it was a complete wreck maybe what you bought it for was a fair market price for house that was a wreck?

Paid £130k instead of £250k the next door neighbour paid a week before me for identical house.

However, their property was all refurbished and mine just an empty shell without even hot water and heating.

It had been on the market for over a year and received no offers at advertised price of £200k.

I threw an offer at £125k thinking it would be rejected but after a short negotiation we agreed on £130k on the basis that they wouldn't have to empty it.

I filled 2 skips!

Point is that the property state of repair is not recorded anywhere, so I don't know how HMRC would go along and say it was sold for under market value.

End of the day as said, market value is what people are prepared to pay.

Paid £130k instead of £250k the next door neighbour paid a week before me for identical house.

However, their property was all refurbished and mine just an empty shell without even hot water and heating.

It had been on the market for over a year and received no offers at advertised price of £200k.

I threw an offer at £125k thinking it would be rejected but after a short negotiation we agreed on £130k on the basis that they wouldn't have to empty it.

I filled 2 skips!

Point is that the property state of repair is not recorded anywhere, so I don't know how HMRC would go along and say it was sold for under market value.

End of the day as said, market value is what people are prepared to pay.

Sounds like an awful lot of hard work king - rather you than me!

As you say, what something is worth - it's market value - will depend on its condition and what someone is willing to pay for a house in that condition. It sounds as if you paid round about the market value for it, given its condition. HMRC interest only happens if the vendor has either died (and Executors are selling the house) or dies within 7 years of the sale - although how they ever know you've sold a house within last 7 years I haven't a clue! HMRC most often query values if the owner has died and the Executors are valuing/selling it. HMRC check the claimed value the Executor puts on the IHT form against their own valuation records and if there is a significant difference they will ask you for evidence to support your claimed valuation.

Even if that had been relevant to the house you bought it's the seller's problem not the buyer's, HMRC would challenge the seller and if they thought there had been undervaluation to avoid IHT it's the seller who is liable to pay any extra tax.

The view HMRC takes of this depends whether you are connected to the seller.

If you were buying from your uncle, then it looks like a sale at less than market value.

If you were buying from someone completely unrelated, then it looks like much better.

The view HMRC takes of this depends whether you are connected to the seller.

How would HMRC know if buyer and seller were uncle and niece/nephew? Last time I filled in Inheritance Tax forms a couple of months ago I don't remember them asking whether the house had been sold. They just asked for the value at date of death I think.

How would HMRC know if buyer and seller were uncle and niece/nephew? Last time I filled in Inheritance Tax forms a couple of months ago I don't remember them asking whether the house had been sold. They just asked for the value at date of death I think.

I don't know how HMRC would investigate this, but there are lots of presumptions in tax legislation dealing with connected persons - see https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm04442.

I suppose the trigger would be if the house was sold for clearly less than market value, that may cause questions to be raised.

Aside from Inheritance Tax, there is also Capital Gains Tax that needs to be considered if the house is not the seller's residence.

There are also deprivation of assets issues if the seller goes into care.

It is very difficult for HMRC to challenge tax on a genuine third party sale, but if the persons involved are related/friends then the possibility of tax avoidance being alleged is much higher. Difficult to say more without knowing the details.