Acquisition costs

Effect of payment on state or nature of shares

In 2006 the taxpayer paid £17.5m to a third-party company to be released from obligations he had agreed in 2003 in relation to his shares in BP Holdings. He then disposed of the shares for £100m. He wished to deduct the £17.5m from the gain under TCGA 1992 s 38(1)(b). HMRC refused.

The First-tier Tribunal upheld the taxpayer’s appeal but the Upper Tribunal overturned that decision. The taxpayer appealed.

The Court of Appeal said the ‘state or nature’ of the shares was identified according to the rights and obligations they conferred on a shareholder under the articles of association of BP Holdings. The 2003 agreement did not affect the state or nature of the asset because it had been a personal agreement between the taxpayer and a third party.

The payment to release the taxpayer from the 2003...