Taxation of Chargeable Gains Act 1992 section 39

Exclusion of expenditure by reference to tax on income

Section 39 prevents expenditure that has already been relieved (or could be relieved) against income tax or corporation tax from also being deducted when computing a chargeable gain.

• Expenditure that is deductible for income tax purposes — whether against trading profits, other income, or any other gains — cannot also be deducted when calculating a chargeable gain, even if the income tax relief was never actually used due to insufficient income.
• Revenue-nature expenditure is also blocked: if the expenditure would have been deductible in computing trading profits had the asset been treated as fixed capital of a trade subject to income tax, it cannot be deducted in the capital gains computation.
• Two specific exceptions preserve the capital gains deduction: expenditure that qualifies for disguised interest treatment under the income tax rules, and expenditure on which structures and buildings allowances have been claimed.
• Where transactions-in-land rules charge the income tax or corporation tax on a person other than the one who actually realised the gain, the amount charged is still treated as the income of the person who realised the gain, so the exclusion in this section applies to that person.