Related Party or at Arms Length Transaction?

Related Party or at Arms Length Transaction?

15:38 PM, 14th October 2021, About 2 weeks ago 6

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I own three BTL properties on three separate independent developments that have their own Right to Manage Companies in place. I am an active director on each of the companies, and a common Property Management Company is independently managing all three developments.

My son has owned and let a property, in one of these developments, that I have been managing for him since newly built in 2004. He does not wish to rent the property and has been trying to sell it since it was vacated in April 2021. The property is in very good condition with over 100 Years Lease still remaining. The property has been on sale through a couple of agents, who have not been able to get a suitable buyer to this date. We have had a couple of companies offering to buy at BMV for cash (at 70% – 80% market value).

I have told my son, and he is happy, for me to consider buying his property for cash at BMV price being offered by the Independent Companies.

My question is:

Would such a transaction for me to buy my son’s property at BMV, at the price being offered by the independent companies, be considered to have been at arms length, i.e., not a related party transaction, and not cause any problems with the Inland Revenue at any stage?

I would appreciate members comments and advice.

Thanks

Ashok



Comments

by Mark Smith (Barrister-At-Law)

18:35 PM, 14th October 2021, About 2 weeks ago

This proposed transaction would be between 'connected parties' and would be deemed to take place at market value regardless of the actual consideration paid.

The issue is how to establish the market value. Your son has tried to sell during a bull market and the best offer he has received is the 'BMV' company-ironically this offer may have set the benchmark for 'MV'.

To avoid an excessive CGT bill your son will have to show the price you pay was the best achievable by reasonable marketing over a reasonable time between a willing seller and a non-desperate buyer.

by Suresh Parikh

14:16 PM, 15th October 2021, About 2 weeks ago

Mark is, of course, right.
You or your son (as owner/seller) has to establish the open market value (which is the price agreed between a willing buyer and seller in an arm's length transaction, excluding any special purchaser).
Please have a documented history of your attempts to sell (having instructed reputable local agents) and the "failed" price points.
Give this history to a Chartered Surveyor who should be asked to determine an OMV to satisfy the requirements of HMRC for purposes of CGT, having regard to the fact that the transaction may be between "connected persons" as a higher price is not achievable.

by Suresh Parikh

14:40 PM, 15th October 2021, About 2 weeks ago

Some practical advice.
If you do not wish to spend money on a Chartered Surveyor, then just go ahead and buy it at "BMV." After the transaction, refer the matter to the Valuation Office to agree the figure.
Your son will have to report the sale within 30 days to HMRC.
If the Valuation Office agrees with you a higher figure, your son will have to pay tax on this figure, and perhaps interest.
The Valuation Office will value it for you only after a sale.
Hope this helps.

by Ashok Babber

18:01 PM, 15th October 2021, About 2 weeks ago

Many Thanks to Mark for his useful comments followed by Suresh's comments in this regards.
From my understanding of both Gentlemen's comments, we believe to have complied with their statements. The property has been on the market through reputable local agents, all of whom have handled a number of viewing with no offers forthcoming, despite the fact that we have reduced the price a couple of times from what the property was initially fairly valued and marketed by all these different agents on National Portal, e.g., RightMove, Zoopla, etc. We are notified each time a viewing is taking place. We have been getting letters from companies that buy properties at BMV. My son is unhappy for the time the property has been on the market and is happy to consider selling it at BMV.
Hence, my thought for buying at BMV from him at the price that he is offered by external Companies.
I wonder if it would be possible to speak with either of you in this matter. Your response would be greatly appreciated.
Thanks and Regards

by Suresh Parikh

11:28 AM, 16th October 2021, About A week ago

Hi
I think you have sufficient information (legal and practical) to proceed in a way you think fit.
I am sure you will be able to contact Mark.
He should be your first choice.
If you decide to consult me in a formal way you may do so by giving me your contact details.
You should appreciate the limit of any pro bono work.

by Ashok Babber

13:18 PM, 16th October 2021, About A week ago

Hi Suresh,
Many thanks for your comments and advice. I believe Mark will soon try to contact Mark.
Regards
Ashok


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