In Julian Blackwell v HMRC [2017] EWCA the Court of Appeal upheld the decision of the the Upper Tier Tribunal (UTT) in concluding that a payment of £17.5 million claimed as a deduction from consideration received on a disposal of shares was not enhancement expenditure.

The relevant legislation is included in TCGA 1992 s38 (1)(b) which allows as a deduction "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"


Mr Blackwell owned shares in a family company.  His vote was needed when making significant decisions affecting the company such as a decision to sell the shares.

Mr Blackwell entered into an agreement with a potential buyer in which he agreed to use his votes in favour only of a sale to that buyer.  He received £1m in exchange for his agreement.

After signing this original agreement, he learned of another potential buyer who was prepared to make a much higher offer, but he could not agree to this without breaching the original agreement.

He therefore paid £17.5 million to free himself from the original agreement so that he could use his votes in favour of the second buyer.

He claimed that this amounted to enhancement expenditure on his shares.

First tier tribunal

The FTT allowed Mr Blackwell's claim.

They concluded that the value of the shares were enhanced by making the payment as Mr Blackwell would be able to receive a larger consideration as a result.

They also concluded that the state of the shares was changed as a result of the payment as Mr Blackwell was now free to vote to sell them to whomever he wanted rather than being bound to sell them only to the party to the agreement.

Upper tier tribunal

The UTT concluded that the asset referred to in s38 was not the asset in the hands of the vendor, but the bundle of rights and assets which would be acquired by a purchaser. 

The payment of the sum to the first potential buyer made no difference to the rights and assets that would be acquired by another purchaser.  Contract law would prevent any purchaser from being bound by the agreement that Mr Blackwell had signed in any event.

The UTT also concluded that the payment was not made to establish, preserve or defend any rights over the asset as the shares themselves were not affected by the agreement that Mr Blackwell had signed.  The agreement related only to Mr Blackwell's behavoir in regard to the shares, and not to the shares themselves or the inherent rights attaching to them.


This is a key decision, providing fresh interpretation of section 38, of what constitutes enhancement expenditure, and in particular of exactly what asset must be enhanced. It is extremely likely that this is a case that will be referred to in future tribunal decisions.

The crucial point to take from the decision is that whilst the FTT focussed on the asset from the point of view of the vendor, the UTT considered the asset from the point of view of the purchaser.  

Going forwards all enhancement expenditure must be considered from this perspective: if it adds no value for a purchaser, or makes no difference to the asset that a purchaser acquires, then it will not be allowed as enhancement expenditure for the vendor.

Useful links

Julian Blackwell [2017] EWCA Civ 232

HMRC v Julian Blackwell [2015] UKUT 0418 (TCC)

Mr Julian Blackwell v HMRC [2014] UKFTT TC03243