Kirby v Thorn EMI plc [1987] BTC 462

Goodwill is distinct from the mere liberty to trade and is capable of being an asset for CGT purposes. ·  

The impact of Zim is clearly considerable: in principle any right of action is an ‘asset’ for the purposes of CGT and the derivation of any capital sum therefrom may constitute a disposal by virtue of s.22.

By treating a right of action as an asset in itself, Zim creates a problem in relation to claims for compensation brought in respect of damage to a tangible asset.

• By the logic applied in that case, if a sum is paid in settlement of a claim, the capital sum derives from the right of action and not from the asset itself.

• Consequently there is no allowable expenditure, even though the asset itself may have been destroyed.

N.B. Where section 17(2) applies the asset has no acquisition cost.

• Thus in the case of a right of action in tort or contract, or a statutory right to compensation, acquired after 9 March 1981 the asset has a nil acquisition cost.

• Accordingly, on the application of the legislation all awards of damages (other than personal injury and libel damages – see section 51(2)) would be liable CGT on the full amount (subject to any reliefs).

• To obviate that, the Revenue have published an extra-statutory concession – D33.