C2.206 Enhancement expenditure
In computing gains or losses, the person making the disposal may deduct the amount of any expenditure wholly and exclusively incurred on the asset by him or on his behalf for the purpose of enhancing the value of the asset, provided the expenditure is reflected in the state or nature of the asset at the time of the disposal1. Although not specifically mentioned in the legislation, HMRC accept that enhancement expenditure may be incurred in money's worth2.
No deduction may be made for the estimated value of the taxpayer's personal labour and skill in carrying out work which enhances the value of the asset3.
To qualify for deduction as enhancement expenditure, the expenditure must have been incurred on the asset the value of which it was intended to enhance. Accordingly, it should be distinguished from expenditure on the acquisition of a new asset4 which incidentally enhances the value of an asset already owned by the taxpayer5.
It is not enough that enhancement expenditure was incurred for the purpose of enhancing the value of the asset. The expenditure must be reflected in the state or nature of the asset at the time the asset is disposed of. It has been held that expenditure which was first reflected in the state or nature of the asset after the date of contract for its disposal, but before the date of completion, may qualify for