Compensation change put on hold

HMRC have published a response to their July 2014 consultation Legislating extra-statutory concession D33.

The concession deals with capital sums received as compensation or damages that can be liable to capital gains tax in the hands of non-corporates or corporation tax on chargeable gains in the hands of corporates.

None of the respondents to the consultation agreed with HMRC’s proposal that there should be an absolute limit of £1m on the amount subject to exemption from capital gains tax. This was on the basis that a tax charge on compensation would be unfair and could cause hardship or injustice.

Many respondents were concerned that the process of determining the compensation or damages payable would be complicated by having to take account of any tax the recipient might have to pay.

This might lead to awards being grossed up to leave the claimant with a certain amount after payment...