Repayment of company debt was not allowable deduction

The taxpayer sold shares in a company for £1.5m. The company had taken out a bank loan and by the date of the share sale agreement the cost of repaying that sum was £693 285. It was however a term of the sale that the shares would be sold free of any secure debt. The taxpayer used the proceeds of the share sale to clear the debt.

He filed his tax return and claimed entrepreneurs’ relief on the disposal of his shares in the company. He also claimed a deduction for incidental costs of sale amounting to £705 000 including the debt repayment.

HMRC disallowed the deduction. The taxpayer appealed.

The First-tier Tribunal held that the cost of repaying a loan that had been made to a company was not allowable expenditure. While it increased the value of the shares it was not expenditure that was wholly...