Enhancement expenditure incurred on property development by an associated company could not be treated as having been incurred by the landowners for capital gains tax purposes.

The appellants acquired disused factory premises and connected land (SM) in 2002 for £170,000. Their purpose was to redevelop SM or at least obtain planning permission and sell it at a profit. A new company (MPL) was established in 2003, with the appellants being equal shareholders. MPL’s sole customer was the appellants.

The appellants and MPL entered into a development agreement, whereby MPL would develop SM. All expenditure in relation to SM was