Tax on growth in value of loan

I am dealing with an estate where some 20 years ago the deceased borrowed £15k from a sibling in order to buy out his ex wife’s half share of their home. The terms of the loan were that when the deceased died, his sibling would become entitled to 60% of the value of the home and as security the sibling took a charge, which was registered, over the property. The property is currently valued at £100k so the sibling stands to receive £60k resulting in a profit of £45k. Is it correct to treat this as being liable to CGT after deducting the CGT personal allowance or should it be treated in some other way?
Patrick Moroney
BWL solicitors

It is difficult to be precise without knowledge of the exact terms but at first sight this sounds like an option to acquire the share on death, the acquisition price of the option being the original £15,000. If correct, the gain on a subsequent sale would be as you state and subject to CGT.

The two income tax risks I thought of were that it is a deeply discounted security (I am no expert but it does not sound anything like a security) and that it constitutes disguised interest but these latter rules were only introduced in relation to arrangements entered into after 6/4/13 and would not apply anyway. It would seem unlikely that HMRC could argue that it is akin to interest under the common law as the arrangement does not sound anything like interest.

Andrew Goodman
Osborne Clarke LLP