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HMRC internal manual

Capital Gains Manual

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HM Revenue & Customs
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Compensation: personal compensation or damages

Sums received as compensation or damages for any wrong or injury suffered by an individual in his person or in his profession or vocation are not chargeable to Capital Gains Tax because of section 51 (2) TCGA 1992.

The exemption does not apply to compensation for any wrong or injury suffered by a person who is not an individual, for example, a company.

The terms ‘wrong or injury’, ‘in his person’ and ‘in his profession or vocation’ are explained below.

Wrong or injury

The words ‘wrong or injury’ include breaches of contractual duties and torts (in Scotland, delicts).

In his person

The words ‘in his person’ should be read in distinction to ‘in his finances’ but they should be read as including distress, embarrassment, loss of reputation or dignity in addition to physical injury. Compensation or damages for unfair or unlawful discrimination suffered in the ‘person’ and for libel or slander (in Scotland defamation) are also included.

In his profession or vocation

The words ‘in his profession or vocation’ refer to compensation or damages suffered by an individual in a professional capacity such as unfair discrimination, libel or slander (in Scotland, defamation) as distinct from ‘in his finances’. If the compensation is received by a partnership each of the partners is treated as receiving a share of the compensation.

Extra statutory concession D33 (ESC D33) - trades or employments

Paragraph 12 of ESC D33 extends the exemption conferred by section 51(2) TCGA 1992, by concession, to compensation received by an individual in his trade or employment.

Extra statutory concession D33 (ESC D33) - compensation for professional negligence in relation to an action in respect of a wrong or injury

If section 51(2) TCGA 1992 would have applied to exempt any compensation or damages which would have been received but for the failure of an action for the wrong or injury due to professional negligence any compensation received as a result of an action for negligence against a professional adviser may, by concession, be treated as exempt under paragraph 12 of ESC D33.

For example, if an individual who suffered a personal injury failed to receive compensation because his or her solicitor was negligent in allowing a claim to become time barred, then any damages for professional negligence received by the individual will be treated as exempt under paragraph 12 of ESC D33.

Extra statutory concession D33 (ESC D33) - compensation received by a person other than the individual who suffered the wrong or injury

Paragraph 12 of ESC D33 extends the exemption in section 51 TCGA 1992, by concession, in the following circumstances:

  • where compensation is received by a person other than the individual who suffered the wrong or injury, such as relatives or personal representatives of a deceased person
  • where compensation is received for emotional distress caused by the death of another individual
  • where compensation is received for loss of financial support due to wrong or injury suffered by another individual.