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.