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Discounted property

01 October 2013
Issue: 4422 / Categories: Forum & Feedback , Income Tax

A dilapidated property was purchased for a very small amount in comparison with its vacant possession value. However, after the construction of a new dwelling, the vendor will be allowed to live in the new property for the rest of their life

One of our clients recently purchased a dilapidated property at a discounted value of £5 000 plus the vendor’s costs. The open market value of the property with vacant possession was said to be about £45 000.

The terms of the agreement were that the vendor who was still occupying the property up to the date of sale would take temporary accommodation while the property was demolished and a new dwelling was built on the land.

The costs of temporary accommodation demolition and the new construction were all paid for by the purchaser. The vendor would then reoccupy the property rent free for their lifetime (this is expected to be less than 10 years) but they would be responsible for payment of utilities council tax etc.

Can readers advise us as to the income tax implications of this transaction? In particular could the purchaser...

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