535 Disposals where capital sums derived from assets

Summary

This section extends further the concept of disposal. It provides that there is a disposal of an asset where any capital sum is derived from the asset, even if no asset is acquired by the person paying the capital sum. The section is expressed to be subject to section 536 which provides that the receipt of certain compensation or insurance monies is not to be treated as a disposal in certain circumstances, and section 537(1) which provides that the transfer of an asset as security (for example, a mortgage of property) or a retransfer on redemption of the security is not a disposal of an asset.

Details

(1) A “capital sum” is any money or money’s worth which is not excluded from being taken into account as consideration in the computation of the gain on the disposal of an asset. An example of receipts so excluded is a case where a capital gain would be treated as a trading receipt for income tax purposes.

(2)(a) Subject to the exceptions already mentioned, there is a disposal of an asset where any capital sum is derived from the asset. This rule applies even if no asset is acquired by the person paying the capital sum. [It should be noted, however, that section 613(1) provides an exemption from capital gains tax for capital sums received as compensation or damages for any wrong or injury suffered by an individual to his/her person or in his/her profession.]

Without taking from the generality of this rule, the receipt of the following capital sums is in particular treated as being a disposal —

• compensation for damage to assets or for the loss or destruction or depreciation of assets (for example, an infringement of copyright);
• insurance payments on account of the damage to or loss or depreciation of an asset (there is, however, a roll-over type relief (deferral of the gain) provided by section 536 in certain cases);
• moneys received for the forfeiture or surrender of rights (for example, a release from a contract);
• consideration for the use or exploitation of assets (for example, a premium for a lease over land).

(2)(b) Notwithstanding that the receipt of an insurance payment on account of the damage to or loss or depreciation of an asset is treated as a disposal, the rights of the insurer or insurer under an insurance policy do not constitute chargeable assets. Policies of insurance on human life are excluded from this provision because such policies are specially dealt with in sections 593 to 595.

(2)(c) Provision is made, however, to prevent avoidance of the charge on capital sums receivable under a policy of insurance through assignment of rights before the compensation is paid over. Such an assignment could otherwise take advantage of subsection (2)(b) which provides that the disposal of rights under a policy does not give rise to a chargeable gain.

Relevant Date: Finance Act 2019