A friend has offered me the chance to purchase a house which is on sale for £200,000 and is the same price as it was bought at 8 years ago. The market value is £350,000-£385,000. My question is two-fold – is it okay for my friend to sell it at less than the market value; and what are the tax implications for each of us, if any? My friend has another home which is his principal place of residence.

See http://hmrc.gov.uk/manuals/cgmanual/CG14530.htm, where it is explained that if: "The transaction is otherwise than by way of a bargain at arm's length" then HMRC have the right to substitute market value for the consideration i.e. what is agreed between the seller and buyer and actually paid. Since the consideration here of £200,000 is so much less than the market value, you stand a serious risk of HMRC claiming that this is not just a 'bad sale' by the seller, but that the property was sold cheaply because the buyer and seller are friends etc, and consequently for capital gains tax purposes they will use the market value of £350,000-£385,000. The result will be that the seller must pay capital gains tax on £350,000-£385,000 less the purchase price of £200,000. But the buyer will be able to use the market value figure of £350,000-£385,000 as his acquisition base cost in any future capital gains tax computation when he sells on the property in the future.