Garner (Inspector of Taxes) v Pounds Shipowners & Shipbreakers Ltd

The House of Lords considered whether, for capital gains tax purposes, the consideration for the grant of an option to buy land should be treated as a net sum after deducting the cost of obtaining the release of restrictive covenants, and whether that cost was deductible expenditure under the Capital Gains Tax Act 1979, sections 32, 40 and 41. The facts included an obligation on the grantor to obtain releases of covenants and a provision for repayment by the grantee if the releases were not obtained.

Key legal issues: (i) the proper measure of consideration for the disposal of the option; and (ii) whether expenditure incurred to obtain the release of restrictive covenants is deductible for the purposes of assessing chargeable gains under the 1979 Act.

Decision: Not stated in the judgment.

Background and parties: The appellant was the Inspector of Taxes and the respondent a corporate taxpayer, Pounds Shipowners & Shipbreakers Ltd. The dispute concerned the tax treatment of a payment related to the grant of an option over land, and associated expenditure to secure release of restrictive covenants.

Nature of the claim: An appeal concerning the computation of chargeable gains and allowable deductions under the Capital Gains Tax Act 1979; in particular whether the consideration attributable to the grant of an option should be reduced by the anticipated cost of obtaining releases of restrictive covenants and whether that cost constituted deductible expenditure.

Procedural posture: Determination by the appellate committee of the House of Lords. Prior stages and lower court decisions are not stated in the judgment.

Issues framed by the court: (i) Is the relevant consideration for the disposal of the option to be treated net of the cost of releasing covenants? (ii) If so, does the cost of obtaining the release of restrictive covenants qualify as deductible expenditure under the Capital Gains Tax Act 1979, sections 32, 40 and 41?

Court's reasoning and conclusion: Not stated in the judgment.