What is a Concessionary House Purchase?
This term is used to describe the sale of a property at under market value between family members. Some lenders might even consider the difference between the transaction value and the market value in lieu of a deposit.
There are a few plus points, and criteria to look out for:
- If the discount is considered a deposit, you could get a 100% mortgage with no deposit required.
- Usually, this option is only available to sales between immediate family members.
- Requirements can be complex, and so an experienced broker is vital.
Why Do People Have the Option of Buying a Home Under Market Value?
In many cases, there might be a misconception that selling a property for less than it is worth is breaking the law, or is unethical - but there is no reason you cannot choose to do this.
Common examples include:
- One family member selling a property to another - often a parent is selling to a child to help them get onto the property ladder, while also saving estate agents fees.
- Seller undervaluing their home to achieve a faster sale - sometimes this occurs after a divorce, or the beneficiary of a Will may need to sell inherited property to settle the tax obligations arising from their inheritance.
- Needing to liquidate property assets quickly to cover debts - homeowners in financial difficulty may choose to sell their home to repay the debt and avoid a repossession scenario.
- Auction properties - often auctions have a reserve price, which is the minimum acceptable. That minimum can often be below market value. Some auction properties are repossessions, and therefore being sold on behalf of a claimant bank.
If I Buy a House at Under Market Value, is there a Tax Liability to Pay?
There can be, particularly if you are buying from a family member:
- Capital Gains Tax is paid on the profit you make from selling a property but isn't usually payable when you sell your primary home. If the property is a second home or part of a portfolio, a tax liability may arise.
For example, if your parents bought a home for £100,000 that now has a market value of £200,000, they might sell it to you for £150,000. Therefore, the taxable gain is the increase in market value, not the actual price you have paid.
- Stamp Duty is payable on a new property purchase, and depends on how much you pay, rather than market value.
Therefore, if you buy a property at under market value and it falls into the bracket below, you can significantly reduce your Stamp Duty costs by paying less.
- Inheritance tax is possible, as the discount offered on a family property sale can be considered a lifetime gift.
For example, if you buy a property from a parent that is worth £500,000, and only pay £300,000, then the £200,000 difference is a lifetime gift.
If the parent passes away after seven years, you are exempt from inheritance tax but could be liable for the full 40% of the £200,000 gift if they were to pass away within three years.
Professional Assistance with Property Purchases at Under Market Value
Business finance broker are specialists in non-standard mortgages and have whole-of-market access to recommend any product from any lender that we feel is best suited to your circumstances.
We work with a vast network of niche lenders, negotiating terms on your behalf to ensure you get the best possible deal.
Contact the team for assistance with any mortgage requirements for concessionary purchases or properties below market value on 0330 304 3040, or email us at [email protected].
2023-05-09 
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