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Allowable costs under TCGA 1992 S38(1)(b)

Payment to release restrictive covenant over land

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Main residence sold several years ago, but some land, subject to a restictive covenant, was retained.

An opportunity has arisen to sell the land and the holder of the covenant has agreed to remove the restriction, in return for a lump sum.

I have read and reread S38(1)(b) but am struggling to convince myself that the expenditure creates "an identifiable change for the better in the state or nature of the asset", following Lord Emslie's comments in Aberdeen Construction Group Ltd v CIR, (52TC281), as outlined at CG15180).

Does anyone have any insight?

Thank you.

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By cathygrimmer
25th Jan 2022 14:16

I'd say not being bound by a restrictive covenant was 'an identifiable change for the better in the state or nature of the asset'. You don't say what sort of restriction it was but if value was given to lift it, it was presumably considered detrimental so lifting it would be a change for the better and it is now a piece of land not subject to that restriction whereas it was so subject before and, therefore, the state/nature of the asset has changed.

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By Tax Dragon
25th Jan 2022 14:36

It's possible that the nature of the restriction is important. The 2017 Blackwell case rehearsed some of the issues - albeit there the asset was shares and the restriction found to be personal to the owner (not a state of being of the shares themselves).

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By Troglodytes
25th Jan 2022 20:35

The restriction was on allowing development and the payment has removed that restriction.

I am now clear that I have the "change for the better", that I was seeking and I have a bit slow on picking this up.

Thanks for the nudge which has helped my process.

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By Tax Dragon
25th Jan 2022 20:38

Oh. My analogy below is closer to the actuality than I realised! :-)

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By Troglodytes
25th Jan 2022 20:30

Thank you Cathy.

This has helped me. I had spent too much time thinking about this and couldn't see the wood for the trees.

Thanks again.

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By Tax Dragon
25th Jan 2022 20:36

An analogy might be the obtaining of planning consent. Nothing has physically changed, but I doubt many would question that it enhances the land (within the meaning of TCGA).

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