Paying the buyer's costs
In calculating the chargeable gain or loss that arises for capital gains tax purposes on the disposal of an asset, legislation sets out the costs that…
In calculating the chargeable gain or loss that arises for capital gains tax purposes on the disposal of an asset, legislation sets out the costs that can be deducted from the sale proceeds in calculating the gain or allowable loss.
Broadly speaking, the allowable deductions comprise the amount paid by the seller to acquire the asset together with the incidental costs of the acquisition or disposal.
The incidental costs of acquisition or disposal are defined as:
- fees, commission or remuneration paid for the professional services of any:
- surveyor or valuer;
- agent; or
- legal adviser;
- costs of transfer or conveyance (including stamp taxes);
- costs of advertising to find a seller (in the case of the acquisition of an asset); and
- costs of advertising to find a buyer (in the case of disposing of an asset),
in each case which are incurred wholly and exclusively for the purposes of the acquisition or disposal.
A recent first-tier tax tribunal case, O'Donnell v HMRC  UKFTT 347 (TC) (26 April 2017), looked at whether or not, where a seller reimburses certain costs and fees that are incurred by the buyer, they can also be treated as allowable deductions in computing the seller’s gain.
It was determined that, although the costs were primarily attributable to the buyer, the reimbursement of certain of those costs by the seller was wholly and exclusively for the purposes of facilitating the disposal and as such were allowable deductions in computing the seller’s gain on disposal.
Whilst each case will turn on its particular facts, the decision demonstrates that where the seller reimburses any of the buyer’s incidental costs of acquisition (falling within any of the above categories) and the sole purpose for doing so is to ensure that the sale goes ahead, such costs may be deductible in computing the seller’s gain.
Haydn Rogan is a tax specialist and a partner in the corporate-commercial team, and can be contacted on 0161 214 0517 or email firstname.lastname@example.org.