CGT: the cost of cost confusion

When you sell or otherwise dispose of a chargeable asset, Capital Gains Tax (‘CGT’) has to be considered, by comparing the sale proceeds (or in some cases market value) with the capital costs of acquiring the asset and (broadly) improving it.

It’s not, strictly speaking, absolutely necessary to be able to show conclusive proof of these costs: ultimately the amount of any gain is a question of the balance of probabilities.  If, for example, you no longer have the completion statement for a piece of land you bought 50 years ago, that doesn’t mean you won’t be allowed to deduct anything for its cost when you come to sell it – but you may have to demonstrate to HMRC what the purchase price is likely to have been.

So, of course, it’s wise to keep a record of what an asset cost you and what ‘enhancement expenditure’ you have incurred.

These issues were explored by the Upper Tribunal in Peter Lowe and another v HMRC [2022] UKUT 84 (TCC).

Mr Lowe had bought (jointly with his business partner) some property in Sheffield.  Building works had been undertaken in the 1980s.  The evidence as to the nature and cost of the works consisted of quotes and invoices from builders.  Most of the quotes were addressed to Mr Lowe: most of the invoices to a company controlled by Mr Lowe and his partner.  It was accepted by HMRC that the work had been done; that the amounts on both the quotes and the invoices had been paid; and that there was no duplication between them.

The problem lay with the invoices addressed to (and assumed to have been paid by) the company.  Was this expenditure ‘incurred by or on behalf of’ Mr Lowe, as it had to be to render it deductible?

The dispute came down to the meaning of ‘on behalf of’.  Did it have ‘a broader meaning that extended to the situation where one person incurred expenditure for the purpose of benefiting another’ or was it ‘confined to a situation where one person is acting as agent, or similar, for another’?

Agreeing with the First-tier Tribunal, the Upper Tribunal held that the phrase should be given ‘its ordinary and natural meaning of connoting a relationship of agency’.  To the extent that the cost of the building work was borne by the company, the expenditure was therefore not incurred ‘on behalf of’ Mr Lowe.

Of course, if there had been evidence that the cost of the work, although initially borne by the company, had been debited to Mr Lowe’s loan account with the company, or treated as his remuneration or as a distribution made to him, the position would have been different.  Certainly, in any of those cases the expenditure would have been ‘incurred’ by Mr Lowe.  But there was no evidence of such debiting or of such treatment.

Back to the observations at the start of this piece about ‘balance of probabilities’.  Could Mr Lowe have argued that, although thirty-odd years after the event one could not be sure, it was more likely than not that the amounts paid by the company to fund building work on his land were either debited to his loan account or treated as remuneration – perhaps on the grounds that they jolly well should have been?  And thus that, on the balance of probabilities, he had incurred the cost.  The Tribunal might not have agreed (and it is unlikely that the Upper Tribunal would have been able to overturn any finding the First-tier Tribunal had made on the matter).  But it wouldn’t be the first time that a tabula in naufragio had rescued a drowning man.

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Sam Inkersole

In 2022, Sam won the Taxation’s Rising Star award at the Taxation Awards in and was named in the Accountancy Age 35 Under 35.

Jon Wedge

While Jon’s client work focuses on the financial services sector, he also oversees the firm’s assurance service, as well as supporting the trainees following in his footsteps.


Elana joined us in 2017 as an ACA trainee, after graduating from Durham University where she had studied languages. She is now a manager in our assurance team.


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