CGT

[ena]

We have rented a flat to the same excellent tenants for almost 10 years and they have now asked us to sell it to them. Based on its cost at the time of purchase in 2007 and the 10 years rent received we have done very well indeed.
We would like to make a significant reduction in the price we ask in view of the occupants rent paid over the past ten years and the price we initially paid for the flat, but have been cautioned on the possible tax implications if we sell under market value.
What precisely are the risks we would be exposed to.

[AGoodman]

There are two issues to consider if you are selling at an undervalue without a sound commercial rationale:

1. CGT will be payable on a deemed sale at market value (ie you have to pay CGT as if you were selling at full market value). s.17(1)(a) TCGA 1992
2. You would be treated as making a gift of the discount for inheritance tax. Unless it is very large, the practical effect would be to reduce your nil rate band if you die within 7 years of the sale.

AG