Houses are sold below market value more often than most people think.
When you go down this route, it’ll impact the tax that you pay.
Here’s an overview of all the details you should think about.
Can I sell a house below market value in the UK?
Yes, you can legally sell a house below market value in the UK.
However, whether you can do this in practice is a different question.
For example, not all banks will approve lending on houses sold below market value.
And if you are considering it to save on costs – you should first check your assumptions.
Capital Gains tax implications of selling a house below market value in the UK
When the house you’re selling is your main residence, there won’t be any impact on capital gains tax (CGT) – it doesn’t apply.
But if the house you sell is not your main residence, you may need to pay CGT on the difference between what you bought and what you sold it for.
Selling for a lower fee may result in a lower tax bill. Get advice from an accountant on this.
You shouldn’t follow this process when selling to a family member.
HMRC can consider this a method of tax avoidance and order a full CGT payment based on the true (/market) value. They could also put a fine on top of this.
Inheritance Tax implications of selling houses below market value
A house’s market value is determined during the probate process after inheriting a property.
An independent expert decides this. So, even if you sell the property for less than its value, you will still need to pay inheritance tax on the full amount.
Inheritance tax could also become relevant, even if you haven’t inherited your property.
The difference could be considered a gift when you sell to a family member for below market value.
Your family member may need to pay inheritance tax on that amount.
Reasons to sell a house below market value
You need a quick sale
Listing your house below the market value can speed up the sale. More people will be interested, because it’s a great deal.
And you may find a chain-free buyer, too. Perhaps you need this because you’re relocating for work or are going through a divorce.
You’re selling to a loved one
You could sell to a loved one below market value, as a favour.
Remember that HMRC may still deem that full tax payments must be made. Speak to an accountant for guidance.
Financial difficulties
If a repossession is impending, or you’ve got major debts, you may need money immediately.
Selling below market value can speed things up and thus give you money fast, especially if you find a chain-free cash buyer.
The property’s condition
You may have no choice but to sell below market value when the house is in a bad condition.
Lenders might refuse to offer a mortgage on it, thus reducing your pool of potential buyers.
