I have a matter at the moment where a similar problem has arisen. Mum had entered into a building contract to have work done on daughter’s house, in the expectation that Mum would be going to live there. The building works included substantial improvements and it was expected to be a 6 month build. Mum died 4 weeks into the contract.
I believe the intended improvements would be included in Mum’s estate, being either a GWROB or a gift within 7 years of death. I have asked an agent to value the likely increase in the value of the property as a result of the improvements and then discounted that value by 10% to reflect the fact that the work had not been completed. I think this is the value of the gift as at the date of death. In your case, I think that A’s estate would include 50% of the expected increased value of the property, discounted by 10%, (further discounted for joint ownership) and then subject to the deduction of £50,000 (half £100,000) owed back to B.
I thought that the value of uncompleted building works should be subject to a discount similar to what you would get buying a property off plan, but the agent told me you don’t get much of a discount these days. I haven’t submitted the IHT400 as yet so I don’t know what HMRC’s view is. I have deducted the outstanding costs due to the builder as a liability against Mum’s estate. If anyone thinks I should be dealing with it differently, please let me know!