Compensation payments – capital or income?

With the change to the flat rate of capital gains tax, at 18% rather than up to the 40%, which can be charged on income, it is unlikely that the divide between ‘capital’ and ‘income’ will assume even greater importance. Where compensation payments are made it can sometimes be particularly difficult if the basis of calculation of the compensation, eg by reference to capital value suggests that the receipt is ‘capital’, but a closer examination of what the compensation is paid for suggest the contrary. The question came up for consideration by the Court of Appeal in Able (UK) Ltd v HMRC [2007] EWCA Civ 1207.