The appellant’s repayment of company debt prior to a share sale did not constitute expenditure on the shares that was reflected in their state or nature at disposal and was therefore not an allowable cost of disposal of the shares.

The appellant held 218 out of 270 ordinary shares in a company (‘E’). A potential purchaser (‘the trust’) entered into discussions with the appellant for the sale of the shares in E.  The appellant (on behalf of himself and the other shareholders), and a representative of the trust (‘SAA’) agreed that the trust would purchase the entire share capital of E for £1.5 million.

The appellant and SAA agreed that the sale of E would be staggered, with 132 shares in E (‘sale shares A’) being sold at first completion, with the remaining 138 shares (‘sale shares B’) being sold at second completion, which could be up to a year later. 

E had