Zim Properties Ltd – Compensation and Damages

1. Introduction

A person who receives a capital sum derived from an asset is treated for the purposes of capital gains tax as disposing of that asset. The case of Zim Properties Ltd v Proctor 58 TC 371[[1985] BTC 42] has established that the right to take court action for compensation or damages is an asset for capital gains tax purposes. It follows that a person who receives compensation or damages, whether by court order or arbitration or by negotiated settlement as a result of a cause of action may be regarded as disposing of the right of action. A capital gain may accrue as a result.

The strict position

2. Cost of acquisition

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