In Ignatius Tedesco v HMRC [2022] TC8498, the First Tier Tribunal (FTT) found that the repayment of secured debt was not a deductible expense for Capital Gains Tax (CGT) purposes despite it being a condition of sale.

  • The appellant sold shares in a company, Everscot, for £1.5m.
  • It was a condition of sale that the shares would be sold debt-free and the proceeds of the share sale were used, in part, to repay a debt secured on the shares of £693,000.
  • The taxpayer filed his tax return claiming a Deduction for incidental costs of sale totalling £705,000 including the debt repayment.
  • HMRC raised an enquiry which was followed by a Schedule 36 Information Notice.
  • HMRC issued a closure notice disallowing the expenditure incurred repaying the debt.
  • Following an unsuccessful Statutory Review, an Appeal was lodged with the FTT.

The FTT dismissed the appeal finding that the repayment of debt was not an allowable cost in calculating the Capital Gains Tax due as:

  • That the appellant did not receive all of the disposal proceeds (as some were used to discharge the debt) did not change the disposal calculation.
  • That the sale could have been structured in a different way, achieving a different tax result, did not have an effect on the determination of the appeal.
  • The expenditure did not meet the legislative conditions, while it was made by the taxpayer and it increased the value of the shares, it was not incurred on the shares, and it was not reflected in the state of the asset (over and above any increase in value) at the time of the sale.

Useful guides on this topic

CGT: Deductible expenditure
What expenditure is allowable for Capital Gains Tax (CGT)? What about loan interest, early redemption fees etc?

Schedule 36 Information Notices
What is a Schedule 36 Information Notice? When can HMRC issue one? What rights does the taxpayer have when an information notice is issued?

Statutory Review (by HMRC)
What is a Statutory Review? Is it automatic? What happens in a Statutory Review? Can you challenge a Statutory Review's findings? Can you influence a Statutory Review? 

How to appeal an HMRC decision
Disagree with an HMRC decision? How to appeal, what type of decision can you appeal and what are your different options when you disagree with HMRC? What are the key steps in making an appeal?

External links

Ignatius Tedesco v HMRC [2022] TC8498

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