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HMRC internal manual

Capital Gains Manual

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HM Revenue & Customs
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Compensation for deprivation of foreign assets: compensation received before 6 April 2010 (1 April 2010 for companies): ESC D50

ESC D50 applied:

  • in relation to compensation received before 6 April 2010 for CGT purposes and
  • in relation to compensation received before 1 April 2010 for CT purposes.

It provided that in certain circumstances capital sums paid by way of compensation for the deprivation of foreign assets would not be treated as giving rise to chargeable gains.

Guidance on the treatment of compensation for deprivation of foreign assets received on or after 6 April for CGT purposes (or on or after 1 April for CT purposes) is given at CG13060.

ESC D50

ESC D50 applied to certain capital sums paid as compensation in recognition of and in recompense for the past loss or deprivation of an asset which at the time of its confiscation, expropriation or destruction was situated outside the UK where, at the time of the loss or deprivation, no legal redress was available to the owner. Loss or deprivation of an asset included the disposal of the asset at less than market value by reason of a sale under duress.

It did not apply to compensation received under any statutory, contractual or other rights in force at the time when the asset was confiscated, expropriated or destroyed.

Where the relevant conditions were satisfied ESC D50 applied to prevent gains from being chargeable gains when they accrued on the receipt of capital sums paid as compensation -

  • to a person who was the owner of the asset at the time it was confiscated, expropriated or destroyed or
  • to persons who acquired their title directly or indirectly from the owner of the asset at the time it was confiscated, expropriated or destroyed.

The concession did not apply to a person who had acquired the right to receive a capital sum as compensation for consideration in money or money’s worth or to a person who had derived their right to receive compensation from another person who had acquired the right for consideration in money or money’s worth. However, transfers of assets or rights within TCGA92/S58 (spouses and civil partners) or TCGA92/S171 (companies in the same group) were ignored for this purpose.

The capital sums to which ESC D50 applied were those paid as compensation -

  • by virtue of statutory orders under the Foreign Compensation Act 1950 or under directly analogous arrangements set up by foreign governments,
  • in consequence of any recommendation of the Spoliation Advisory Panel or of any equivalent body set up outside the UK or
  • in settlement of legal claims, or by the order of any recognised court or legal tribunal with jurisdiction to cover such claims to the effect that the original seizure of the asset was wrongful and should be declared illegal.

The Spoliation Advisory Panel was set up by the Secretary of State for Culture, Media and Sport in April 2001 in order to mediate claims in respect of art which was seized during the Nazi era which is now held in UK national collections, museums or galleries.

The value of the compensation received was the amount paid in money or money’s worth in respect of the compensation claim. Where the claim was satisfied by the transfer of an asset the value of the compensation was taken to be the value at which the asset was treated as having been acquired for the purposes of computing a gain or loss on its subsequent disposal. This will normally be the market value of the asset at the time of the transfer.

ESC D50 did not apply to any gain arising on a subsequent disposal of an asset which has been returned.

The concession did not apply to so much of the gain arising on the receipt of a capital sum paid as compensation that was equal to the amount of an allowable loss which accrued to a person as a consequence of -

  • the asset having been confiscated, expropriated or destroyed or
  • as a result of the abandonment or extinction of the rights in respect of which a claim for the compensation was established.