Introduction
Capital Gains Tax (CGT) is a tax on profits from selling assets. To calculate the taxable gain, allowable expenses are subtracted from the sale proceeds. The rules for allowable expenses under CGT are specific and can vary based on the sale circumstances. A key requirement is that expenses must be entirely for the purpose of the sale. J Blackwell v HMRC [2017] EWCA Civ 232 provides important guidance on applying this requirement, particularly to professional fees linked with selling property.
The Facts of J Blackwell v HMRC
Mr. Blackwell, the taxpayer, incurred professional fees when selling land. These fees covered legal work to agree sale terms and a surveyor’s assessment of the property’s value. HMRC disallowed part of these fees as deductible expenses, arguing they were not entirely for the sale. The First-tier Tribunal (FTT) upheld HMRC’s view, and the Upper Tribunal (UT) agreed. Mr. Blackwell appealed to the Court of Appeal.
The Court of Appeal's Decision
The Court of Appeal overturned the previous decisions, ruling in Mr. Blackwell’s favor. The Court explained how to assess “entirely for” under CGT. It held that the purpose of expenses should be determined by the taxpayer’s own reasons for paying them. The Court also decided that expenses could be deductible even if they had two goals, provided any non-sale purpose was minor. Here, the Court found Mr. Blackwell’s main reason for the fees was to complete the sale, with any other effects being secondary.
Impact of the Judgment
The Blackwell case offers practical guidance on handling professional fees under CGT. It confirms that the taxpayer’s own reasons for expenses are central in deciding deductibility. This simplifies the process for taxpayers and advisors to evaluate how sale-related costs will be treated. The ruling also establishes that minor additional benefits from expenses do not block deductibility. This applies to fees such as legal, surveyor, and accounting costs tied to asset sales.
Dual Purpose and Secondary Benefits: Key Points
The Court of Appeal’s focus on secondary benefits is notable. Before Blackwell, uncertainty existed about how dual purposes affected deductions. The judgment clarified that if a secondary goal is minor relative to the main sale purpose, expenses can still be treated as entirely for the sale. For example, legal fees to finalize a sale may be deductible even if they also resolve a small property dispute, provided the sale was the primary aim.
Steps for Taxpayers to Follow
Following the Blackwell decision, taxpayers should clearly record why professional fees related to asset sales are incurred. Records should show the primary goal was the sale itself. Evidence of the taxpayer’s reasons for paying the costs is critical. Keeping invoices, correspondence with advisors, and internal records can help support the purpose of expenses and their deductibility for CGT. Taxpayers should seek advice from professionals to follow rules and claim valid deductions.
Conclusion
J Blackwell v HMRC [2017] EWCA Civ 232 clarifies the treatment of professional fees under CGT. The Court of Appeal’s emphasis on the taxpayer’s reasons and the role of secondary benefits provides clearer rules for taxpayers and advisors. This ruling has changed how “entirely for” is applied in CGT, confirming that dual purposes do not always block deductibility. This principle applies to costs like legal, surveyor, and accounting fees linked to sales. Taxpayers must document the purpose of these costs to meet the standards set in this case and CGT rules. Doing so helps ensure accurate tax calculations and compliance.
