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HMRC internal manual

Capital Gains Manual

Chargeable assets: intangible assets: rights

Rights as assets: section 21(1) Taxation of Chargeable Gains Act 1992

Section 21, subsection (1) provides that “all forms of property” shall be assets for capital gains purposes including, inter alia, “incorporeal property generally”. This means that the term “assets” includes items of property that have no material existence. These are generally referred to as “intangible assets”.

The courts have concluded that as an asset must be a “form of property”, an intangible asset must have the following characteristics:

  • it must be something which is capable of being owned and
  • its value must be capable of being realised.

These essential characteristics have been considered by the courts in deciding whether certain types of intangible “rights” are assets for CG purposes.

Ownership of rights

The importance of distinguishing between rights which are capable of being owned and freedoms which are not was considered in Kirby v Thorn EMI plc, 60TC519. The case concerned a sum paid to a company for entering into a restrictive covenant which affected its freedom to engage in certain types of trading activities carried on by three of its former subsidiaries. The company argued that by entering into the covenant it had not disposed of or derived a capital sum from an asset. The courts accepted that a person’s freedom to trade was not a form of property and therefore not an asset for CG purposes because the words “a form of property” in section 21(1) TCGA 1992 must take their normal legal meaning of something which is capable of being owned. The court held that the restrictive covenant was not the source of the capital sum because it was not owned by the company immediately prior to the disposal. However, the sum was, at least in part, derived from the company’s goodwill.

The case is considered in more detail at CG68060.

Realising value from an asset such as a right

The meaning of “realising value” from an asset was considered in O’Brien v Benson’s Hosiery (Holdings) Ltd, 53TC241. The House of Lords held that a capital sum was derived from a company’s rights under an employment contract even though its ability to turn those rights to account was limited by the nature of the asset. The case is considered in further detail at CG13000.

In certain circumstances it may be possible for a person to realise value from an asset which they no longer own, see CG12975.

Different types of rights

Where a person appears to have either disposed of a right or derived a capital sum from his ownership of a right it is essential that the precise type of “right” involved in the transaction is identified, as not all rights are capable of being assets for chargeable gains purposes.

The following are four examples of rights which are capable of being assets for CG purposes:

  • statutory rights, see CG12020
  • contractual rights, see CG12040
  • rights of action, see CG12060
  • rights to deferred consideration, see CG12080.

Disposals of rights

Some “rights” can be disposed of by transfer or assignment to another person but more commonly there will be an occasion of a disposal when a capital sum is derived from a right, see CG12990+.

For guidance on the CG treatment of capital sums derived from:

  • statutory rights, see CG12995
  • contractual rights, see CG13000
  • rights of action, see CG13015.

The CG treatment of rights to deferred consideration is considered at CG14850+.