Can I Sell My House for Less Than Market Value?

Most homeowners want the best possible price when selling a house. There are, nevertheless, circumstances when selling a house for less than its market value would make sense – or perhaps be required. Selling below market value is perfectly legal in the UK, whether you’re helping a family member onto the property ladder, looking for a quick sale under financial pressure, or just avoiding estate agent fees. That said, it’s not without its complexities.

In this guide, we’ll go over what selling below market value actually means, who can do it, and the tax, legal, and financial ramifications you should take into account before moving forward.

What does “market value” mean?

Usually found by comparing similar homes in the local area, the market value of a property is the amount it would fairly be expected to sell for in current conditions. This figure is typically assessed by estate agents and RICS-certified surveyors based on recent sales data, property condition, and demand in your neighbourhood.

If you sell your home for significantly less than this amount, it is considered a sale below market value. It’s a common practice, but it should be approached with caution, especially if you’re selling to someone you know.

Can I sell my house for less than market value?

Yes, selling below market value is perfectly legal in the UK. Homeowners are not obligated to sell for the full market price and may accept any offer, whether from a stranger, a friend, or a family member. However, just because the sale is legal does not mean it is without consequences.

HMRC will likely scrutinise transactions involving family members or close associates. This is because these sales can occasionally be used to transfer assets without paying the necessary taxes.

Why would someone sell below market value?

There are several scenarios in which a homeowner may choose to accept a reduced price:

• Helping a family member get on the property ladder by offering a significant discount
• Accelerating the sale of a property due to financial difficulties, divorce, or impending repossession
• Selling directly to someone they trust allows them to avoid estate agent and solicitor fees
• Selling to a real estate investor or cash-buying company for a quick, chain-free transaction
• Probate or family inheritance involves the settlement of an estate

While each of these is a valid reason, it is critical to fully comprehend the consequences of selling at a discount.

The risks and implications of selling below market value

1. Capital Gains Tax (CGT)

If the property is not your primary residence, selling it below market value may not result in tax savings. HMRC will still calculate any capital gains tax owed using the property’s market value at the time of sale, not the discounted price.

For example, if you sell an investment flat worth £250,000 to your brother for £200,000 after purchasing it for £150,000, your gain will still be £100,000, despite receiving £50,000 less than its current value.

2. Inheritance Tax (IHT)

Selling below market value to a relative may be considered a gift by HMRC. If you die within seven years of the sale, the discounted amount may be added to the value of your estate to calculate inheritance tax. This is known as the “7-year rule”, and it can result in significant tax liabilities for your heirs.

This is especially important if the transaction involves transferring a portion of the property’s equity (known as gifted equity) to a child or grandchild.

3. Stamp Duty Land Tax (SDLT)

When a property is sold to a connected party (such as a family member), SDLT may be applied based on the market value, even if the purchase price is less. This is especially true if the transaction includes the transfer of a mortgage. The buyer will be required to pay stamp duty on the full, fair market value.

4. Impact on mortgage and financing

If your home is still mortgaged, you may be unable to sell below market value unless your lender agrees. This is because the sale proceeds must typically cover the loan’s outstanding balance. If they don’t, the lender may stop the transaction.

Furthermore, if the buyer requires a mortgage, their lender may refuse to approve a loan based on an unusually low sale price, particularly if it raises concerns about the transaction’s legitimacy.

5. Deliberate deprivation of assets

If you sell below market value and then apply for means-tested benefits or local authority care, the sale may be considered intentional deprivation of assets. This means you knowingly reduced your capital to qualify for financial assistance, and the authorities may continue to assess you as if you still owned the property or funds.

What you need to know about selling to a family member

Selling below market value to a family member is common, but it often involves additional paperwork and red tape. HMRC classifies relatives and close friends as “connected persons”, and such transactions are closely monitored to prevent tax evasion.

Main considerations:

• Get a professional valuation from a chartered surveyor to determine the market value
• Ensure that both parties have separate legal representation to avoid conflicts of interest
• Declare gifted equity accurately on legal documents and mortgage applications
• If you’re gifting a portion of the value, keep in mind the 7-year rule for IHT
• Document the transaction completely in writing, including the rationale for the lower price

If you intend to gift equity or significantly reduce the price, you should consult with a solicitor and a tax adviser before proceeding.

Need to sell your home fast, with no hassle or hidden fees?

Selling a house for less than market value can be a generous act or a strategic move, but it’s not a decision to make lightly. Whether you’re helping a loved one, freeing up cash quickly, or avoiding a lengthy sale process, it’s vital to understand the tax, mortgage, and legal implications.

At Sell House Fast, we buy properties in any condition across the UK in as little as a couple of weeks. Whether you want to sell below market value or get a fair cash offer for your home, we’re here to help. Contact us today for a free, no-obligation quote.