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Allowable losses
The taxpayer invested in an enterprise zone property unit trust. He claimed 100% first year allowances for 1988-89. Some ten years later, the trustee realised a capital gain on the property, and in 1999 received a capital distribution on his units. These were part disposals under TCGA 1992, s 42 and the taxpayer claimed capital losses. HMRC disallowed the claim, saying that part of the sum he had paid for the units was expenditure in respect of which a capital allowance had been made (s 42(2)).
The Special Commissioner allowed the taxpayer's appeal and the High Court confirmed his decision.
HMRC appealed to the Court of Appeal. The court said that the purchase of the property gave rise to the capital allowances, not the money paid to subscribe to the scheme. Despite the fact that in equity and for the purposes of capital allowances, the actual payment was made out of assets beneficially owned by the unit holders, the effect of s 99 resulted in the actual payment being regarded for capital gains tax purposes as being made by the notional company.
HMRC's appeal was dismissed.
Smallwood v CRC, Court of Appeal, 17 May 2007
