Kirby v Thorn EMI plc [1987] BTC 462

• Goodwill is distinct from the mere liberty to trade and is capable of being an asset for CGT purposes. ·  

• The impact of Zim is clearly considerable: in principle any right of action is an ‘asset’ for the purposes of CGT and the derivation of any capital sum therefrom may constitute a disposal by virtue of s.22.

• By treating a right of action as an asset in itself, Zim creates a problem in relation to claims for compensation brought in respect of damage to a tangible asset.

  • By the logic applied in that case, if a sum is paid in settlement of a claim, the capital sum derives from the right of action and not from the asset itself.

  • Consequently there is no allowable expenditure, even though the asset itself may have been destroyed.

• N.B. Where section 17(2) applies the asset has no acquisition cost.

  • Thus in the case of a right of action in tort or contract, or a statutory right to compensation, acquired after 9 March 1981 the asset has a nil acquisition cost.

  • Accordingly, on the application of the legislation all awards of damages (other than personal injury and libel damages – see section 51(2)) would be liable CGT on the full amount (subject to any reliefs).

  • To obviate that, the Revenue have published an extra-statutory concession – D33.

ESC D33

• Damages or compensation which derive from a right of action in respect of an underlying asset are treated as though they derive from that asset.

  • So the calculation of chargeable gains is made as if s22 applied.

• If any relief or exemption would be available on a disposal of the underlying asset, the concession allows that relief or exemption to be available on the disposal of the right of action.

Smith

• Arguably too narrow a view of derived from, so expansive view of assets.

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• Zim Properties Ltd v Procter