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July 6, 2017

UPDATE: Julian Blackwell v HMRC - Release from restriction deductible for CGT?

The Court of Appeal has upheld the Upper Tribunal’s decision in HMRC v Blackwell [2015] which ruled that the costs of releasing a taxpayer from restrictions about how they could use their shares was not deductible for capital gains tax purposes.


Click here to see our previous blog post on the Upper Tribunal case in 2015.

The taxpayer entered into an agreement which restricted how they could use their shares.  Some years later the taxpayer paid £17.5m to be released from this agreement so that they could dispose of their shares.

The taxpayer then claimed the £17.5m payment as a deductible expense under TCGA 1992 s. 38(1)(b) on the grounds that it either:

  • Enhanced the value of the shares and was reflected in its state or nature at the time it was sold (Limb 1) or
  • Was incurred in establishing, preserving, or defending their title to, or to a right over, the shares (Limb 2)

The Decision

Limb 1

The Court held that the taxpayer’s payment did not affect the rights of the shares themselves. It merely allowed the owner to exercise their rights.

The taxpayer could theoretically have chosen exercise their rights without obtaining a release from the agreement though the Court acknowledged this would have left them liable for breach of contract.

Therefore the restrictions were separate from the shares and were not reflected in their state or nature at the time of disposal.

Limb 2

For similar reasons, the Court also found that the payment to release the taxpayer from the agreement did not establish or re-establish their title to or any rights over the shares.

Consequently the Court of Appeal agreed with the Upper Tribunal’s decision that the £17.5m payment was not deductible.



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