Deductibility of fee to third party

The taxpayers were interested in investing in property. A third party SB told them about a property he was interested in but was unable to buy because of cash flow problems. He offered to give them details in exchange for a fee if they proceeded with the purchase which they did.

Due to the first taxpayer being unwell he was unable to oversee the work necessary on the property. So both taxpayers agreed to pay SB half the eventual profit on the transaction and he would help as required with the renovation. No written agreement was entered into.

When the work was completed the property was sold for a profit of about £64 000. HMRC agreed the disposal gave rise to a chargeable gain rather than a revenue profit.

On receipt of an invoice from SB the taxpayers sent him one half of the profit –...