Taxation of Chargeable Gains Act 1992, section 38

Acquisition and disposal costs etc

Part II General Provisions relating to computation of gains and acquisitions and disposals of assets

(1)Except as otherwise expressly provided, the sums allowable as a deduction from the consideration in the computation of the gain accruing to a person on the disposal of an asset shall be restricted to—

(a)the amount or value of the consideration, in money or money’s worth, given by him or on his behalf wholly and exclusively for the acquisition of the asset, together with the incidental costs to him of the acquisition or, if the asset was not acquired by him, any expenditure wholly and exclusively incurred by him in providing the asset,

(b)the amount of any expenditure wholly and exclusively incurred on the asset by him or on his behalf for the purpose of enhancing the value of the asset, being expenditure reflected in the state or nature of the asset at the time of the disposal, and any expenditure wholly and exclusively incurred by him in establishing, preserving or defending his title to, or to a right over, the asset,

(c)the incidental costs to him of making the disposal.

(2)For the purposes of this section and for the purposes of all other provisions of this Act, the incidental costs to the person making the disposal of the acquisition of the asset or of its disposal shall consist of expenditure wholly and exclusively incurred by him for the purposes of the acquisition or, as the case may be, the disposal, being fees, commission or remuneration paid for the professional services of any surveyor or valuer, or auctioneer, or accountant, or agent or legal adviser and costs of transfer or conveyance (including stamp duty [F122or stamp duty land taxF122] ) together—

(a)in the case of the acquisition of an asset, with costs of advertising to find a seller, and

(b)in the case of a disposal, with costs of advertising to find a buyer and costs reasonably incurred in making any valuation or apportionment required for the purposes of the computation of the gain, including in particular expenses reasonably incurred in ascertaining market value where required by this Act.

(3)Except as provided by section 40, no payment of interest shall be allowable under this section.

(4)Any provision in this Act introducing the assumption that assets are sold and immediately reacquired shall not imply that any expenditure is incurred as incidental to the sale or reacquisition.

Definitions used in section 38 5

assets

(a) the reference to “assets” were a reference to “property”, and

Defined in Sch.4ZA para.22(2) · see it in the full Act
asset

In this sub-paragraph “asset” includes part of an asset.

Defined in Sch.8B para.6(1) · see it in the full Act
land

“land” includes messuages, tenements, and hereditaments, houses and buildings of any tenure;

Defined in s.288(1) · see it in the full Act

(b) “land” includes buildings.

Defined in Sch.2 para.9(5) · see it in the full Act
tax

and for the purposes of this definition “tax” means capital gains tax, corporation tax or income tax.

Defined in s.16A(2) · see it in the full Act
market value

(5AA) In this Act “market value” in relation to shares of a given class in an open-ended investment company the prices of which are published regularly by the authorised corporate director of that company (whether or not those shares are also quoted in The Stock Exchange Daily Official List) shall mean an amount equal to the price so published on the relevant date, or if no price was published on that date, on the latest date before that date.

Defined in s.272(5AA) · see it in the full Act

(5) In this Act “market value” in relation to any rights of unit holders in any unit trust scheme the buying and selling prices of which are published regularly by the managers of the scheme shall mean an amount equal to the buying price (that is the lower price) so published on the relevant date, or if none were published on that date, on the latest date before.

Defined in s.272(5) · see it in the full Act

(1) In this Act “market value” in relation to any assets means the price which those assets might reasonably be expected to fetch on a sale in the open market.

Defined in s.272(1) · see it in the full Act

(4) In particular, for the purposes of paragraphs 5 and 7 of this Schedule “market value” has the meaning given by paragraph 92 of Schedule 2 to that Act (determination of market value); and Part 8 of this Act has effect subject to this paragraph.

Defined in Sch.7D para.1(4) · see it in the full Act

Cases considering section 38 12

Revenue & Customs v Mayes

[2011] EWCA Civ 407 · 12 April 2011

Deductible acquisition expenditure required identification of the consideration given wholly and exclusively for acquiring the policies, together with qualifying incidental costs. The amount and purpose of the payments could not be determined without factual findings by the tribunal. (see paras [81]; [91]-[98]) Application of the wholly and exclusively test to ascertain what consideration was paid for acquiring an asset is a question of fact for the First-tier Tribunal. The issue was therefore remitted. (see paras [93]-[98])

Drummond v HM Revenue & Customs

[2009] EWCA Civ 608 · 25 June 2009

Deductible acquisition expenditure was confined to consideration given wholly and exclusively for acquiring the policies. Payments attributable to scheme services and other benefits did not satisfy that requirement. (see paras [28]–[31])

HM Revenue & Customs v Smallwood

[2007] EWCA Civ 462 · 17 May 2007Interprets

Section 38(1) was treated as limiting allowable deductions to consideration given by or on behalf of the person disposing of the relevant asset. The provision therefore made the computation asset-specific. (see paras [22]; [60]; [62]-[63]) Section 38(1)(a) identified the subscription as the consideration given for acquiring the unit holder’s notional shares. The trustee’s later expenditure on property was not part of that consideration. (see paras [60]; [76]-[79])

What each judgment says about section 38 is in the case-law panel in the full Act.

Amendments and notes

4 notes from legislation.gov.uk

Amendments

  1. F122Words in s. 38(2) inserted (10.7.2003) by Finance Act 2003 (c. 14), Sch. 18 para. 5

Modifications

  1. C123S. 38 restricted (3.5.1994) by Finance Act 1994 (c. 9), s. 173(4)(d) (with s. 173(1))
  2. C124S. 38(1)(a)(b) restricted (5.10.2004) by Energy Act 2004 (c. 20), s. 198(2), Sch. 9 para. 4(2) (with s. 38(2)); S.I. 2004/2575, art. 2(1), Sch. 1
  3. C125S. 38(1)(c) applied by Finance Act 1996 (c. 8), s. 92(5D) (as inserted (with effect in accordance with s. 79(3) of the amending Act) by Finance Act 2002 (c. 23), Sch. 23 para. 5(3))