My mother is the sole 100% shareholder and sole director of a limited company that owns a property. She would like to sell this property from the company to me for under market value. For example, the property is valued at £425,000 and I would be purchasing this for £300,000. My lender is happy with this based on me putting down 15% deposit based on the full market value which is £63,750 and the mortgage covers the remaining to make up it up to £300,000. The lender says the difference (i.e. £125,000) would be considered a gift. Are there any restrictions or laws to say that a limited company cannot gift the difference to myself as we are purchasing under market value?  

Arthur Weller replies:  

If you look at HMRC’s Employment Income manual at EIM21601 and EIM21640 onwards (‘Assets transferred to a director or employee at an undervalue’), you will see that there would be a tax charge on your mother for this £125,000. Even though the property is being transferred to you, and not your mother, your mother is the one who will be taxed. Also see EIM20504.