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HMRC internal manual

Capital Gains Manual

Debts: satisfied by acquisition of property: acquisition by creditor

The normal rule in Section 251(3) is that the creditor acquires the asset at its market value. This is the acquisition cost you use when computing the gain on a later disposal of the asset. However you may have to reduce that gain if the original debt was not a chargeable asset. Section 251(3) requires that the gain must be no greater than the gain which would have resulted if the property had been acquired for the amount of the debt. This adjustment will apply if the amount of the debt is higher than the market value of the property. If you did not make this reduction it would mean that the taxpayer was effectively suffering a capital gain on the disposal of a non-chargeable debt. See CG53514 for instructions on how to make the adjustment.