Readers' forum : Keep it in the family

Michael owns a house which he bought for £100 000 many years ago. It now has a market value of £375 000. The house has been let for many years and is now empty.

Michael plans to sell the property at market value to his nephew Paul but Paul cannot obtain a mortgage for this amount. Michael has agreed therefore that Paul can pay the purchase price by instalments over 25 years without interest. In other words Paul will pay Michael £15 000 each year but he will have the option to pay additional amounts if he wishes.

Because Michael and Paul are connected persons it appears that the sale will result in an immediate upfront capital gains tax liability of £77 000 (28% x £275 000). However although faced with this liability Michael will receive only £15 000 in cash in...