Commentary

C2.506 Settlement of action for compensation or damages

Capital gains tax
Capital gains tax | Commentary

C2.506 Settlement of action for compensation or damages

Capital gains tax | Commentary

C2.506 Settlement of action for compensation or damages

For the latest New Development, see ND.67.

The right to bring an action to enforce a claim is an asset if it can be turned to account by a negotiated settlement involving payment of a substantial capital sum1. In Zim Properties Ltd2 the payment of agreed compensation by the taxpayer's solicitors for loss arising from their negligence was held to be derived from the taxpayer's right to sue the solicitors. That right was an asset of the taxpayer company and was acquired by it when its cause of action arose (although no asset was acquired by the solicitors on making the payment). The company had suffered loss when the contract for sale of some of its properties was rescinded by the purchaser because the company was unable to show a good title to the property. The cause of action arose on the date when the contract was entered into and consequently that was the date when the right was acquired by the taxpayer. The acquisition of the right was not an arm's length transaction (see C2.109).

If the expenditure incurred in acquiring a right of action, including legal and professional costs, exceeds the amount

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