Release of obligation in lease was not allowable expenditure

In 1972 the trust leased an area of land to a company (B&R) for 30 years and this was extended for a further 30 years in 1996. In 2011 B&R agreed to sell the yard to another company GE. B&R then surrendered the lease to the trust which granted a new lease to GE.

In its 2011-12 tax return the trust included a capital gains computation which it later acknowledged was incorrect because it did not apply the part disposal rules. HMRC opened an enquiry during which the trust claimed the cost of releasing B&R from the reinstatement provisions as enhancement expenditure (TCGA 1992 s 38(1)(b)).

HMRC issued a closure notice showing a revised gain but disallowed the deduction as enhancement expenditure. It did though allow a smaller sum as a cost to the trust of the surrender of the lease. The taxpayer appealed.

The...