To work at a barn that is selling horses to your students is a conflict of interest. Of course, if the barn owners are allowing you to give lessons, perhaps even use their horses to do it, you need to be loyal to them. If you bite the hand that feeds you, you could be out of a job.
But you also have a duty to your student. How will you feel if s/he gets injured?
And you have a duty to yourself and your reputation. If you tell the student to buy the horse, and it proves to be dangerous, you look bad.
You should talk to the barn owner first and let them know that you can not support them in selling this horse to this student. Then you should tell the student your opinion of the horse.
Then, you should look for another barn where you can give lessons. The ideal situation would be to find a place of your own; if that is impossible, I would suggest finding a barn where they board only, and do not buy and sell horses. That is, if you own some lesson horses of your own.