Selling a Rental Property Below Market Value to Family
Last updated 29 June 2026 · 8 min read · By the LandlordTaxAi Editorial Team
The short answer
You can’t cut your tax by selling a rental cheaply to family. Because relatives are connected persons, Capital Gains Tax is worked out on the full market value — the “mates rates” price you actually agree is ignored. The discount you give is also a gift for inheritance tax (a 7-year clock), and any loss on the sale is “clogged” so you can’t use it freely.
It feels like a neat plan: sell your buy-to-let to a son or daughter at a discount so they get onto the ladder and you trim your gain. But the tax system anticipated exactly this. The market-value rule means HMRC substitutes what the property is really worth for the price you agreed.
This guide explains the connected-persons rule, the inheritance-tax angle and the stamp-duty position for 2026/27. For an outright gift instead of a sale, see gifting a rental property to your children.
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CGT Calculator 2026/27 (use market value)
Estimate Capital Gains Tax on a family sale — enter the market value, not the discounted price.
Result
- Total gain
- £66,000
- Less annual exempt amount
- − £3,000
- Taxable gain
- £63,000
- CGT at 24%
- £15,120
- Net proceeds after CGT
- £50,880
Connected-persons rule: CGT is based on open-market value. Residential rates 18%/24%, £3,000 allowance, 60-day reporting. Estimate only.
The connected-persons market-value rule
Under sections 17 and 18 of TCGA 1992, a disposal to a connected person is deemed to take place at open-market value. The price you actually receive — even if you genuinely negotiated it — is irrelevant for calculating your gain. So if you sell a £300,000 property to your daughter for £200,000, your CGT is still based on £300,000.
Market value is the price the property might reasonably be expected to fetch on a sale in the open market — usually supported by a surveyor’s valuation, which is well worth getting to defend the figure.
The cash trap: you may receive only the discounted price but owe CGT on the full value — so the tax can be a large slice of the money you actually get.
Who is a connected person?
Broadly: your children, parents, grandparents, grandchildren and siblings, their spouses/civil partners, and your spouse’s relatives, plus business partners and companies you control. Spouses and civil partners are treated differently — transfers between them are normally on a no-gain/no-loss basis, so the market-value rule isn’t the issue there.
The inheritance-tax gift element
Selling below market value means you’ve given away the difference. That undervalue is a gift — a potentially exempt transfer — so it falls under the 7-year rule. Survive seven years and it leaves your estate; die sooner and the gifted value is added back, potentially with taper relief.
Losses are “clogged”
If the deemed market value is below your cost, the resulting loss is clogged: it can only be set against future gains on disposals to the same connected person, not against your gains generally. So you can’t manufacture a usable loss by selling cheaply to a relative.
Get your gain right before you transfer
LandlordTaxAi keeps a clean record of purchase price, costs and improvements — the figures you need to compute CGT on a family transfer accurately.
See how it worksA worked example
Tom sells a rental worth £300,000 to his son for £200,000. He bought it for £150,000 and is a higher-rate taxpayer.
| Price actually received | £200,000 |
| Market value (used for CGT) | £300,000 |
| Less original cost | £150,000 |
| Gain (before allowance) | £150,000 |
| CGT at 24% (after £3,000) | ≈ £35,280 |
| £100,000 discount | A gift — 7-year IHT clock |
Tom is taxed as if he sold for £300,000, even though he only received £200,000 — and the £100,000 he gave away is a PET for inheritance tax.
Frequently asked questions
Can I sell my rental to my child cheaply to save tax?
No. Children are connected persons, so CGT is deemed to happen at market value regardless of the price. A low price doesn’t cut your CGT.
What is the connected-persons rule?
Under TCGA 1992 s17–18, disposals between connected persons are treated as made at open-market value, replacing the actual price.
Who counts as a connected person?
Broadly your children, parents, siblings and their spouses, plus your spouse’s relatives. Spouses/civil partners themselves transfer on a no-gain/no-loss basis.
Is the discount a gift for inheritance tax?
Yes. The undervalue is a gift (a PET) and counts for the 7-year inheritance-tax rule.
Can I claim a loss if I sell cheaply to family?
Any loss is “clogged” — usable only against gains on disposals to that same connected person.
What about Stamp Duty for the buyer?
SDLT is generally based on what the buyer actually pays (including any mortgage taken over), not the CGT market value. The buyer should check the additional-property surcharge.
Written and reviewed by the LandlordTaxAi Editorial Team. Our guides are reviewed against current HMRC guidance and updated when the rules change. Operated by LandlordTaxAi, United Kingdom. Follow us on LinkedIn.
Last reviewed: 29 June 2026 · Researched against primary UK sources for the 2026/27 tax year: https://www.gov.uk/capital-gains-tax/market-value; https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg14530; https://www.litrg.org.uk/tax-guides/savers-property-owners-and-other-tax-issues/capital-gains-tax/capital-gains-tax-gifts. This article is informational only and is not a substitute for advice on a transaction of this size — speak to a qualified accountant or solicitor.