Hi Dave - Yes either by an estate agent or in some cases of difficulty, HMRC will instruct their own district valuer to give them a realistic indication of market value. They can also use records of other comparable surrounding properties that have been sold recently, taking account of minor factors that would have changed this valuation either way.

Many thanks for the reply. I am now much clearer on the issue. I presume that to estimate the "full market value" it has to be done by an estate agent or other professional. Estate agents can hype up an estimate depending on their potential earnings from sale?

If you sell, give or otherwise dispose of a property (that's not your main home) to any other family member - or to a spouse or civil partner that you haven't lived with during that tax year - you'll have to work out the gain or loss made and any Capital gains tax due.

Any sale or gift of the property at undervalue will be deemed to have taken place at the full market value by HMRC when it comes to calculating the CGT liability, so the amount of capital gains due, if any, from you will work out the same regardless of the sale going ahead for a reduced figure. Once you've paid the CGT due if any (if it's jointly owned with your spouse, remember you both have CGT allowances),

The amount you provide for the loft extension would fall under the inheritance tax microscope as a gift, only if you failed to survive a full Seven years after making the gift.... assuming your total estate including the gift excceeded the value of your allowable IHT threshold at the date of death...... If you do hopefully survive Seven years (or more) after donating the gift, then the gift drops out of your estate completely for IHT purposes.

I have a small second house worth around £100k in which my daughter and family live. They are in need of more space but do not have the capital to extend, and nor do I. If I sell her the house for say £50k she should get a low mortgage rate because of the low loan to value ratio, could afford the monthly payments, and I can then pay for a loft conversion.

What are the implications of my selling the house to her below market value (capital gains tax?) and presumably paying for the loft conversion is a gift, but I may well last another 7 years which should take it out of any inheritance tax issues?

I am retired so do not want to take on any additional loans against my current house (assuming I would be accepted).