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HMRC internal manual

Capital Gains Manual

HM Revenue & Customs
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Compensation: termination of building society agencies

These instructions tell you when a Capital Gains Tax liability would arise when a building society terminated an agency and made an ex-gratia or compensation payment to the agent.

Ex gratia payments

You can accept that no Capital Gains Tax liability arises in respect of ex-gratia payments made by building societies on the termination of agencies. The normal course of events leading up to such payments would have been

  • the agency agreement provides that either party may terminate the arrangements by giving notice but there is no provision for compensation to be paid for the loss of the agency
  • the building society decided to replace the agent by a branch and advised the agent that, although it is under no contractual obligation to do so, its practice is to make an ex-gratia payment which is usually equal to the last three years commission up to the cessation of the agency
  • shortly after the cessation the agent received a cheque accompanied by a ‘thank you’ letter referring to an ex-gratia payment.

Some building societies and their agents entered into a different type of arrangement under which

  • the agent was paid a sum which was usually equal to his final years commission as compensation for the loss of his agency


  • further sums were to be paid at the end of each of the next two succeeding years provided that the agent had not accepted an agency with another building society.

In these circumstances the agent should not be regarded as assessable on these sums under Schedule D provided it is accepted that the second and third ‘instalment’ payments are chargeable to Capital Gains Tax, TCGA92/S22 (1), see CG12940+.

Derived from what asset?

Capital Gains Tax applies to these payments on the basis that they are capital sums, being money or money’s worth not assessable to income tax, TCGA92/S37 (1), and are derived from assets even though no asset was acquired by the person paying the capital sum, TCGA92/S22 (1), see CG12970.

The asset(s) concerned are either

  • the rights under the agency etc agreement, TCGA92/S21 (1), see CG12000+


  • the goodwill of the business, see CG68000+.