Death and taxes - well, CGT to be exact

Which value to use?

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A husband and wife buy an investment property for £100k - it's never lived in by them, so no need to consider PPR or lettings relief.  The husband is made bankrupt, and during the bankrupcy proceedings, he unfortunately dies.  The wife still owns her half share of the property, and wishes to acquire ownership of her late husbands half share so she can sell the property and live off theproceeds, as there will be no cash coming out of the estate.  She pays £25k to the people dealing with the bankrupcy to have the husnband's share of the property transferred to her name, and then shortly after, sells the property for £150k.

Ignoring other costs and fees on the purchase and sale, I would normally take the wife's cost as being her half of the orignal purchase price (£50k) plus the probate value of the husband's share (£75k) which would pass to her on his death, so the gain would be:

£150k - £50k - £75k = £25k.

But, in this case, the wife has paid £25k for the husband's half share, so her gain would be:

£150k - £50k - £25k = £75k.

At this stage, I'm still trying to find out what exactly the £25k payment was in relation to, but I suspect it might have been simply to allow the property to be ignored for bankrupcy purposes, and to pass from husband to wife as was probably the intention in the Will, and would then presumably adopt the probate value.  If this is the case, would the £25k payment count as part of the cost for CGT purposes?  If so, the calculation is:

£150k - £50k - £75k - £25k = £NIL     

If not, do I have the first scenario, where the gain is £25k?  I'm concerned about how the market value/connected parties rules interact when there is a bankrupcy order in place, and how to treat the £25k payment. 

Any thoughts?

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By gbuckell
21st Oct 2016 10:40

I cannot see that the £25k payment can enhance the base cost. I view it as a payment to extinguish liabilities. Thus my view is that the base cost is £125k as in your first calculation.

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