Centrica – UK Supreme Court finds that professional fees incurred in pursuing a subsidiary sale but before the deal was struck were capital expenditures

The taxpayer, an intermediate UK holding company for subsidiaries in various countries, incurred fees of an accounting firm, Netherlands law firm and an investment banker in connection with the difficult process for accomplishing a share sale of, or an asset sale by, a Netherlands subsidiary (“Oxxio”). In rejecting the position of the taxpayer that such fees incurred between retaining those advisors on the prospective sale and the board meeting over a year later when the sale price to a purchaser was approved were incurred on income rather than capital account, Lady Simler stated (at para. 87):

[T]he clear objective purpose of the Disputed Expenditure was to assist in bringing about the disposal of an identifiable capital asset, namely the Oxxio business, in whatever form that transaction ultimately took. Money expended to achieve a disposal of a capital asset is properly regarded as being of a capital nature. … The fact that there was no certainty that the Oxxio business would be sold does not make the expenditure revenue in nature. … Indeed, expenditure on an abortive capital disposal transaction is capital expenditure nonetheless … .

Neal Armstrong. Summary of Centrica Overseas Holdings Ltd v Commissioners for His Majesty’s Revenue and Customs, [2024] UKSC 25 under s. 18(1)(b) – capital expenditure v. expense - asset disposal expenses.