Tax implications of below market value sale

Zzippy

Hi, would appreciate any advice on a tax query for a possible property deal. Let's say someone wanted to sell a property they owned for a quick cash sale. Because they want a quick sale and cash only, they are prepared to accept much less than market value. The prospective buyer would pay cash, then flip the property for market value. Are there any tax implications to buying the property for less than market value, other than the CGT on the profit made?

Just to be clear, this is only an idea that was mooted to me, and I would only consider it if I was fully aware of the tax implications and with full knowledge of the tax I would have to pay. Not trying to avoid or evade tax in any way whatsoever, just have very little knowledge of tax law. Thanks for any advice!

johnnyskeleton

Zzippy wrote: »

Hi, would appreciate any advice on a tax query for a possible property deal. Let's say someone wanted to sell a property they owned for a quick cash sale. Because they want a quick sale and cash only, they are prepared to accept much less than market value. The prospective buyer would pay cash, then flip the property for market value. Are there any tax implications to buying the property for less than market value, other than the CGT on the profit made?

Just to be clear, this is only an idea that was mooted to me, and I would only consider it if I was fully aware of the tax implications and with full knowledge of the tax I would have to pay. Not trying to avoid or evade tax in any way whatsoever, just have very little knowledge of tax law. Thanks for any advice!

You pay stamp duty and solicitors fees on the purchase and CGT and solicitors fees on the sale.

If you see someone who wants to sell a property for €100k, and you know someone who would buy it for €150k i.e. more than covering your costs, thats classic capitalism. Theoretically revenue could dispute that you actually only paid 100k and that the stamp duty should have been paid on a higher value transaction.

Marcusm

Address it with your solicitor at the point of conveyancing if you wish but the ability of the Revenue to impose "market value" is generally restricted to non arm's length transactions, ie ones where there is a connection between the buyer and the seller. The fact that the buyer is selling, in a quick sale, for less than he could receive if he marketed it for 3 months is generally not of consequence/relevance to Revenue provided there is no connection between the parties and the sale is not pursued in pursuance of an intention to avoid tax. Failing to achieve the highest price is a commercial not a tax consideration.

Zenify

I think I see what you are doing here. Be careful, if you sell something to someone below market value and they are "connected" to you in some way, the balance between market value and sale price is a gift and that is taxable.

Zzippy

Zenify wrote: »

I think I see what you are doing here. Be careful, if you sell something to someone below market value and they are "connected" to you in some way, the balance between market value and sale price is a gift and that is taxable.

Thanks, this is the kind of thing I would be hoping to avoid. No connection other than the possible seller is a client of a friend of mine, who mentioned it in case I knew anyone who might be interested. I don't even know this person's name as of yet. As I said, it was only an idea mooted to me and I'd like to be aware of all possible implications and costs before even considering it fully.
If seller and buyer are not related or have business connections in any way, is there any way Revenue could consider it a taxable gift?

Henry Ford III

If a quick sale is needed and a discount given for that then the lower price becomes the true market value.

There's no tax implications other than the purchase price being a little lower for stamp duty and future CGT purposes.

Victor

Zzippy wrote: »

Thanks, this is the kind of thing I would be hoping to avoid. No connection other than the possible seller is a client of a friend of mine, who mentioned it in case I knew anyone who might be interested. I don't even know this person's name as of yet. As I said, it was only an idea mooted to me and I'd like to be aware of all possible implications and costs before even considering it fully.
If seller and buyer are not related or have business connections in any way, is there any way Revenue could consider it a taxable gift?

Be careful that your friend isn't breaching their professional duties and that the two of you aren't conspiring to commit fraud.

Zzippy

Henry Ford III wrote: »

If a quick sale is needed and a discount given for that then the lower price becomes the true market value.

There's no tax implications other than the purchase price being a little lower for stamp duty and future CGT purposes.

Thanks. I'm sure it's swings and roundabouts, what Revenue lose out on stamp duty they will more than make up in CGT.

Victor wrote: »

Be careful that your friend isn't breaching their professional duties and that the two of you aren't conspiring to commit fraud.

No intention to do so, and I would take independent advice before going ahead, I wouldn't want both parties to any sale to be getting advice from the same person. Genuine query here so I know what tax would be payable and therefore whether it would be worth doing. Friend's duty is obviously to his client, who has mentioned a price and asked if he knew anyone who would be interested. He takes his job very seriously so I doubt he would be party to any illegal activity.

Victor

There have been stories in the past of estate agents failing to obtain market price for their client.

Might your friend be selling a lemon?

Zzippy

Victor wrote: »

There have been stories in the past of estate agents failing to obtain market price for their client.

Might your friend be selling a lemon?

He's not an estate agent, represents his client in another field and has no financial interest in what price is paid for the house.

Zenify

Zzippy wrote: »

Thanks, this is the kind of thing I would be hoping to avoid. No connection other than the possible seller is a client of a friend of mine, who mentioned it in case I knew anyone who might be interested. I don't even know this person's name as of yet. As I said, it was only an idea mooted to me and I'd like to be aware of all possible implications and costs before even considering it fully.
If seller and buyer are not related or have business connections in any way, is there any way Revenue could consider it a taxable gift?

It's been a while since I was doing my tax exams (never finished) so I can't fully remember all the examples of connected persons. But you don't just have to be related, if it's for some sort of financial gain than you could also be connected.

Zenify

If you are not connected and you sell it, that price will become the new market value as previously stated by another poster. (not taxed as a gift imo)

4ensic15

If the Revenue think that a property is undervalued they can have it valued and can insist it be stamped at the higher value. They will also investigate bank accounts to see if any cash changed hands which was not mentioned in the contracts. The only way to avoid this is to auction it with a low reserve. If it is properly marketed and sells under the hammer it is impossible to claim the sale price was not market value.