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HMRC internal manual

Capital Gains Manual

Compensation: displaced tenants: Drummond v Brown 58TC67

58TC67The authority for exempting statutory compensation payable under Section 37 L&TA 1954 is the case of Drummond v Brown, 58TC67. In that case, the taxpayer was served with a notice to quit as the landlord wished to occupy the property. At the end of the notice period, the taxpayer left the property and received compensation calculated in accordance with the L&TA 1954.

The Court decided that the compensation did not arise from the disposal of an asset. The tenancy had already come to a natural end and the compensation was payable simply because the statute said that it should be. This situation was contrasted with that in which a tenant surrendered the fag end of his tenancy to the landlord without receiving a notice to quit; in such circumstances the compensation would be chargeable to tax. The two types of cases can be distinguished by reference to the instructions at CG72360+.