Taxation of Chargeable Gains Act 1992, section 39

Exclusion of expenditure by reference to tax on income

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

(1)There shall be excluded from the sums allowable under section 38 as a deduction in the computation of the gain any expenditure allowable as a deduction in computing the [F123profitsF123] or losses of a trade, profession or vocation for the purposes of income tax or allowable as a deduction in computing any other income or profits or gains or losses for the purposes of the Income Tax Acts and any expenditure which, although not so allowable as a deduction in computing any losses, would be so allowable but for an insufficiency of income or profits or gains; and this subsection applies irrespective of whether effect is or would be given to the deduction in computing the amount of tax chargeable or by discharge or repayment of tax or in any other way.

(2)Without prejudice to the provisions of subsection (1) above, there shall be excluded from the sums allowable under section 38 as a deduction in the computation of the gain any expenditure which, if the assets, or all the assets to which the computation relates, were, and had at all times been, held or used as part of the fixed capital of a trade the [F123profitsF123] of which were (irrespective of whether the person making the disposal is a company or not) chargeable to income tax would be allowable as a deduction in computing the [F123profitsF123] or losses of the trade for the purposes of income tax.

(3)M1,M2No account shall be taken of any relief under Chapter II of Part IV of the Finance Act 1981 or under Schedule 5 to the Finance Act 1983, in so far as it is not withdrawn and relates to shares issued before 19th March 1986, in determining whether any sums are excluded by virtue of subsection (1) or (2) above from the sums allowable as a deduction in the computation of gains or losses for the purposes of this Act.

[F124 (3A)This section is not to be taken as excluding, from the sums allowable under section 38 as a deduction in the computation of the gain, expenditure allowable as a deduction in computing a return on which income tax is charged under Chapter 2A of Part 4 of dfnITTOIA 2005 (disguised interest) (but see section 381D of that Act).F124]

[F125 (3B)This section is not to be taken as excluding, from the sums allowable under section 38 as a deduction in the computation of the gain, any expenditure in respect of which an allowance under Part 2A of CAA 2001 (structures and buildings allowances) is made.F125]

[F126 (4)If—

(a) because section [F127 517G(4) or (6) of ITA 2007 (transactions in land: the chargeable person) applies, an amount is charged to income tax as income of F127] a person other than the person (“A”) by whom the gain was realised, and

(b)the income tax has been paid,

for the purposes of this section the amount charged to that tax is regarded as having been charged as the income of A.F126]

[F128 (5)If—

(a) because section [F129 356OG(4) or (6) of CTA 2010 (transactions in land: the chargeable company) applies, an amount is charged to corporation tax as profits of a person other than F129] the person (“B”) by whom the gain was realised, and

(b)the corporation tax has been paid,

for the purposes of this section the amount charged to that tax is regarded as having been charged as the income of B.F128]

Definitions used in section 39 14

trade

“trade” has the same meaning as in the Income Tax Acts;

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

(b) “trade”, “profession” and “vocation” have the same meaning as in the Income Tax Acts.

Defined in s.165(8) · see it in the full Act

(9) In this section and Schedule 7 and in determining whether a company is a trading company for the purposes of this section and that Schedule, the expression “trade” shall be taken to include the occupation of woodlands where the woodlands are managed by the occupier on a commercial basis and with a view to the realisation of profits.

Defined in s.165(9) · see it in the full Act
profession

(b) “trade”, “profession” and “vocation” have the same meaning as in the Income Tax Acts.

Defined in s.165(8) · see it in the full Act
vocation

(b) “trade”, “profession” and “vocation” have the same meaning as in the Income Tax Acts.

Defined in s.165(8) · see it in the full Act
income

(6) Sub-paragraphs (4) and (5) above apply for the purposes of paragraph (b) of sub-paragraph (1) above as they apply for the purposes of paragraph (a), reading “income” for “property".

Defined in Sch.5 para.2(6) · 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
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
company

“company” includes any body corporate or unincorporated association but does not include a partnership, and shall be construed in accordance with section 99 ;

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

(5) In this paragraph “company” and “group” shall be construed in accordance with section 170(2) to (9).

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

“shares” includes stock;

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

(5) In this paragraph, except in paragraphs (a) to (c) of sub-paragraph (6), “shares” includes an interest in shares.

Defined in Sch.7AC para.10(5) · see it in the full Act

(b) “shares” includes securities,

Defined in Sch.7 para.4(2) · see it in the full Act
the shares

(5) In sub-paragraphs (3) and (4) and in the following provisions of this Schedule references to “the shares” are to the shares referred to in sub-paragraph (1)(a).

Defined in Sch.7ZB para.1(5) · see it in the full Act

(a) references to “the shares” shall be construed in accordance with sub-paragraph (1) above, and

Defined in Sch.5B para.13(12) · see it in the full Act
building

“building” includes part of a building and references to a building may include references to land occupied therewith and used for the same purposes;

Defined in Sch.2 para.15 · see it in the full Act
ITA 2007

“ITA 2007” means the Income Tax Act 2007 ;

Defined in s.288(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
CTA 2010

“CTA 2010” means the Corporation Tax Act 2010 ;

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

Cases considering section 39 6

HM Revenue & Customs v Smallwood

[2007] EWCA Civ 462 · 17 May 2007Interprets

Section 39(1) excludes only expenditure which would otherwise be allowable under section 38. It could not exclude the trustee’s expenditure on the property from the unit holder’s base cost of the notional shares. (see paras [23]; [62]-[65]; [76]-[79])

Revenue & Customs v Smallwood

[2006] EWHC 1653 (Ch) · 6 July 2006Interprets

Interprets section 39(1) as excluding from the notional company’s allowable base cost expenditure on the property which gave rise to capital allowances for unit holders. The same expenditure is not excluded from the base cost of the unit holders’ notional shares (see paras [60]-[66]).

Camas Plc v HM Inspector of Taxes

[2003] EWHC 1600 (Ch) · 7 July 2003Limits

Prevents expenditure already deductible in computing corporation tax profits from being deducted again in calculating a chargeable gain. The court treated section 75 as the primary relief where qualifying management expenditure was incurred before a later disposal. (see paras [21]; [30])

What each judgment says about section 39 is in the case-law panel in the full Act.

Amendments and notes

14 notes from legislation.gov.uk

Amendments

  1. F123Word in s. 39(1)(2) substituted (31.7.1998) by Finance Act 1998 (c. 36), s. 46(3)(a), Sch. 7 para. 7
  2. F124S. 39(3A) inserted (with effect in accordance with Sch. 12 para. 18(1) of the amending Act) by Finance Act 2013 (c. 29), Sch. 12 para. 7
  3. F125S. 39(3B) inserted (5.7.2019) by The Capital Allowances (Structures and Buildings Allowances) Regulations 2019 (S.I. 2019/1087), regs. 1, 4(5)
  4. F126S. 39(4) inserted (6.4.2007) by Income Tax Act 2007 (c. 3), s. 1034(1), Sch. 1 para. 300 (with Sch. 2)
  5. F127Words in s. 39(4)(a) substituted (with effect in accordance with s. 82 of the amending Act) by Finance Act 2016 (c. 24), s. 79(9) (with savings in 2017 c. 32, s. 39(1)(2)) this amendment is subject to savings and/or transitional provisions, see the commentary.
  6. F128S. 39(5) inserted (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 229 (with Sch. 2)
  7. F129Words in s. 39(5)(a) substituted (with effect in accordance with s. 81 of the amending Act) by Finance Act 2016 (c. 24), s. 77(8) (with savings in 2017 c. 32, s. 39(1)(2)) this amendment is subject to savings and/or transitional provisions, see the commentary.

Modifications

  1. C126S. 39 extended (27.7.1993 with effect for the years 1992-93 and subsequent years of assessment as mentioned in s. 184(3)) by 1993 c. 34, s. 176(2)(b), 184(3)
  2. C127S. 39 excluded (with effect in accordance with s. 1329(1) of the amending Act) by Corporation Tax Act 2009 (c. 4), ss. 670(7), 1329(1) (with Sch. 2 Pts. 1, 2)
  3. C128S. 39 excluded (with effect in accordance with s. 1329(1) of the amending Act) by Corporation Tax Act 2009 (c. 4), ss. 672(4), 1329(1) (with Sch. 2 Pts. 1, 2)
  4. C129S. 39 extended (with effect in accordance with s. 1329(1) of the amending Act) by Corporation Tax Act 2009 (c. 4), ss. 1157(2), 1329(1) (with Sch. 2 Pts. 1, 2)
  5. C130S. 39(1) modified (22.7.2004) by Finance Act 2004 (c. 12), s. 133(5)(b)

Marginal citations

  1. M11981 c. 35.
  2. M21983 c. 28.