I am uncertain as to how capital gains tax CGT should be calculated in this circumstance, and can't find any information or examples. I purchased a property, at a reduced rate (around 65% of open market value), on account of the fact that the vendor retained a lifetime interest at nil rent. The property was valued by local, reputable surveyors, in order to ascertain an accurate purchase price at the time, taking account of the lifetime tenancy. When, at some time in the future, I come to sell the property (without it being subject to a lifetime tenancy), how do I work out the gain? I know that I would have to use the price achieved or market value (whichever of the two is the higher) for the 'sale aspect', but I'm uncertain as to what figure I use for the initial acquisition cost/value when calculating the capital gain. I would like to hope that I would be regarded as having purchased the property at full open market value (with the purchase monies being reduced, in the actual consideration, to reflect the fact that the vendor wished to remain in the property as a lifetime tenant, at nil rent). If I have to use the actual consideration (market value reduced by 45%), then obviously this would make my gain much bigger, which seems a bit mean, in the light of the fact that the property is to be occupied, for many years, by a life tenant at nil rent. I know that HMRC doesn't like folks buying and selling assets 'on the cheap' to avoid tax, but this is a little different as the consideration was reduced to take account of the introduction of a life tenant at nil rent and as calculated by a reputable firm of surveyors. I have a dreadful feeling that I will have to use the actual consideration at the time of purchase (and not the open market value, as stated in the surveyor's report, and obviously 45% more than I actually paid.)

Arthur Weller replies:
Unfortunately, the base cost for this property for tax purposes is the price you actually paid. The fact that you got a reduction, for whatever reason, is deemed to be not relevant for tax purposes.