In John Robinson v HMRC [2019] TC07286 the First Tier Tribunal (FTT) dismissed the claim that a payment to an aggrieved shareholder was compensation for personal wrong or injury and held that it was subject to Capital Gains Tax (CGT).
Under s51(2) TCGA 1992 sums received as compensation or damages for any wrong or injury suffered by an individual either in their person or their profession are not chargeable gains.
Mr Robinson, a UK resident, was a shareholder and directors of a Bermuda based company. In 2009 he was removed from the board of directors and in 2012 the company was sold despite him voting against it.
- During this time the company failed to provide him with information in his capacity as a shareholder (a regulatory offence) and, according to Mr Robinson, made various comments about him that were damaging to his reputation.
- Later in 2012 Mr Robinson commenced court proceedings under provisions of the Bermudan Companies Act concerned with fair value for shares. He later said his objective was to obtain information and documents so that he could vindicate his position and protect his reputation. An out of court settlement was reached for £1million.
- HMRC said the £1million was to compensate Mr Robinson for a reduction in the value of his shares (not for personal loss) and was taxable under s22(1) TCGA 1992; it was paid in return for the forfeiture or surrender of his right to sue.
- Mr Robinson, who had declared the payment on his tax return stating that it was not subject to capital gains tax, said the payment was made not to compensate him for a reduction in his share value, but to stop him accessing the documents and information requested.
The FTT dismissed the appeal:
- s51(2) TCGA 1992 applies to damages for personal injury and defamation; a payment made for settlement of a claim brought under a provision relating solely to fair value for shares cannot be said to be damages/compensation for “any wrong or injury suffered by an individual in his person or in his profession or vocation”.
- The motives behind the commencement of the claim and/or the motives behind settling the claim did not alter the nature of the payment.
The judge went on to say he was not persuaded, given the lack of evidence presented, that Mr Robinson’s motive for bringing the claim was anything other than obtaining fair value for his shares, or that the company’s reasons for settling the claim meant that the payment should be treated as a payment for a “wrong or injury suffered by an individual in his person”.
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