C2.202 Acquisition costs
In computing the gain accruing to a person on the disposal of an asset, he is entitled to deduct from the consideration for the disposal the amount or value of the consideration, in money or money's worth, given by him or on his behalf wholly and exclusively for the acquisition of the asset. This includes incidental costs of the acquisition (see below)1.
The expenditure must be incurred in providing the asset. In Garner2, consideration was received for the grant of an option to purchase land. Completion depended on obtaining the release of two restrictive covenants which cost the vendors £90,000; they claimed this as an allowable deduction, but the House of Lords held that the release of the covenants was not undertaken to provide the option but was part of it and the cost was not allowable.
It would appear that expenditure is incurred on behalf of another person if the relationship between that person and the person incurring the expenditure is that of principal and agent3.
For this purpose, so much of the cost of woodland in the UK is disregarded as is attributable to trees or saleable underwood4 growing on the land5.
The requirement that the consideration must be given wholly and exclusively for the acquisition of the asset was examined in a case where the taxpayer company guaranteed a subsidiary's bank overdraft. In the event the company had to meet its guarantee and claimed it had thereby acquired as an asset the bank's