Question: Can my dad sell me a two-bedroom 'buy-to-let' flat way below the market price? It's worth £220,000, but I can buy it for £100,000. Is it legal? Are there tax problems?
Sarah Azize, Berkshire
Answer: First-time buyer woes are well-documented: vertiginous house prices, stringent lending criteria, tough credit scoring and the need for a gargantuan deposit to qualify for an affordable mortgage rate.
So too is the financial ballast from parents, without which it's increasingly hard to own a home. Your father's plan is an innovative alternative to a well-trodden parentally-aided path to ownership. But it has a cost that may make it less palatable versus a loan or gift.
It might seem slightly shady, but selling at less than the market price is perfectly legal. Many banks will lend on such a deal and there is no chicanery with the taxman. But you must take a clear set of steps to ensure you don't fall foul of the rules, says Leonie Kerswill, tax partner at accountant PricewaterhouseCoopers.
"You may be buying a property for much less than it would fetch on the open market but there's a price to pay: capital gains tax (CGT) as if it was. Since CGT is payable when you sell or dispose of an asset, this tax will need to be paid – and recorded on a self-assessment form – by your father as if the property was sold at the full market rate," she adds.
When he sells it to you, he must pay the tax (18 per cent if a basic-rate earner, 28 per cent if a higher or additional-rate earner) on the difference between the original purchase price and market value. You face possible inheritance tax if your father dies in the next seven years. You would have to pay tax at 40 per cent if his estate breached the £325,000 threshold.