Abortive legal costs

Abortive legal costs

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The shareholders of a company incurred legal costs of approx. £11k on the proposed disposal of the shares to another company. The deal then fell through but the shares were subsequently sold to another company within a few months of the original deal falling through.

In calculating the CGT due on the successful sale, is relief available for the abortive legal costs? My view is that relief should be available because the majority of the work carried out by the solicitors in respect of the original deal would have been relevant to the successful deal. However, I have not been able to find anything specific to justify this view.

Has anyone come across this situation before and if so, can you point me in the direction of something concrete (eg Revenue Manuals, case law etc) that I can use as evidence for the treatment.

Many thanks in advance.

Tim Hill

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By kenmoody
28th Sep 2007 16:52

I'm rather sceptical about this myself
Clearly there can only be one disposal and the disposal costs which are allowable must be 'wholly & exclusively' incurred for the purposes of the disposal. You have some costs related to another potential disposal which fell through, therefore I don't see how they can be wholly & exclusively in respect of the actual disposal. I'm not sure that the fact that some costs were 'saved' in relation to the actual disposal means that those costs were wholly & exclusively incurred for the purposes of the disposal - clearly they weren't. If the lawyers can give you a figure for those costs you could chance a claim but you may wish to disclose this as additional information.

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