HMRC has introduced changes to Extra Statutory Concession D33 (Capital Gains Tax on compensation and damages)
From 27 January 2014:
HMRC's Concession update highlights that the original rationale for the change was the High Court case of Zim Properties Ltd v Proctor and states:
'HMRC wants to make sure the tax system is administered fairly so we think it is right that anyone in receipt of compensation of more than £500,000 should be asked to make a claim in writing to HMRC if they believe more than just the first £500,000 should be exempt from CGT.'
The Concession clearly states that where:
'compensation or damages paid is income, it is taxable to income tax. This won’t change as this concession deals only with capital gains tax (CGT) on compensation and damages that are capital sums.'
It goes on to state that if:
'the compensation can be linked to an asset which is chargeable to CGT, the compensation is taxed as a capital gain on that asset. This won’t change. For example, compensation paid by an estate agent because his negligence led to the sale of a building falling through is treated as if it is a capital gain on the building.'
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