We are looking to enter into a joint venture with a widow whose property, when her husband died three years ago, was in negative equity. He went to Holland for cancer treatment, eventually passed away in The Hague and she remained in Holland.  She let the property so it would ‘wash its face’ (break-even), and now she is worried about principle private residence (PPR) relief and capital gains tax (CGT). She has asked that once the property is knocked down, rebuilt into a new home and sold she will be entitled to one-third dividend, which she intends to re-invest into a new similar project or various enterprise investment schemes immediately after receiving the cash. Can you advise the best course of action/strategy to adopt that will negate the need for her to pay CGT and, with respect to both not losing her PPR relief and/or become liable for CGT?

If it is feasible to adapt the present building, instead of knocking it down, this would be the most tax efficient route for the widow, since all, or most, of the increase in the value of the house until today will be free of tax for her due to PPR relief, and letting exemption. If this is not feasible, then the introduction of the land into the property development joint venture will again be completely, or mostly, free of tax for her, but all other profits in this property development joint venture will be taxable on her in the same way as it would be for anyone else.