Question: Will HMRC think my offer is illegal?
My Dad just passed away and my mum has gone into a care home. As my husband and I have not bought our own house we are thinking of buying their home. The house is in Scotland. Currently the market value is £300,000; however, with the slump in the oil industry and Covid-19 and the fact that the house is a little run down (e.g. kitchen cupboards broken, main shower not working, boiler does not produce hot water and carpets are worn) we are first time cash buyers and can afford to offer only approximately £240,000. My mum has plenty of money in shares for her own care. Initially my sister’s Power of Attorney was all for £240,000. Having previously looked into buying a house through auction, I think this offer is fair. However today my sister’s Power of Attorney has said the High Street estate agent laughed at this offer and said it should not be sold for less than £300,000 or she could be investigated for not doing right by mum. Please could you tell me it there anything illegal in my offer? Is the estate agent only after her own pocket?
Arthur Weller replies:
Answer: You are allowed to buy this house from your mum for whatever the family agrees to. HMRC do not come into this here. The amount of money that you actually pay will be the amount that you Land & Buildings Transaction Tax (LBTT) on. However for capital gains tax purposes, your mother is deemed to be selling it at its market value, and you are deemed to be buying it at the same amount. See HMRC’s Capital Gains manual (www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg14530). This is because you and your mum are connected persons. But if, as is quite likely, your mum has lived in her house as her main residence all the time she owned the house, she will not pay any CGT when she sells to you, even at a higher figure, because all her capital gain is covered by principal private residence relief. So there is nothing illegal in your offer. You just need to sort out your sister.