Land Compensation Act Part 1 Claim

BooMiller

Hi
I have put a claim in with Highways England and would like to know if approved would I pay tax on the compensation? Thanks

mybestattempt

That legislation relates compensation for loss of value in interests in land due to public works.

That being the case, I would say that any compensation was capital in nature, so no income tax charge.

However, it may need to be taken into account for capital gains tax purposes when it is received or if/when the land involved is disposed of.

Are you able to give more information about the reason for your claim and the nature of the land please?

BooMiller

Thanks for your response. In essence a motorway slip road was built outside the front of my property so the compenstation is based on the fact that as a result of the sliproad it has reduced the value of my property.
I was thinking along the lines of capital gains tax which would party negate the compenstation which doesn't make sense to me. 

mybestattempt

I've looked at the HMRC Capital Gains Tax Manual and S22 and S23  of the Taxation of Capital Gains Act 1992.

This is how I see it ( I appreciate others may disagree):

Assuming the compensation is just for depreciation in value of the property (no physical restoration is needed), and the amount of compensation received is more than 5% of the value then there is a deemed disposal on the date the compensation is received so, there is an occasion for charge of CGT purposes.

However, assuming the property has been your principle private residence throughout ownership, the amount of compensation is wholly covered by PPR so no CGT would be due.

https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg12945

https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg15701

Are any of my assumptions are incorrect?

BooMiller

As I understand it the compensation is for rhe depreciation of the property value and the compensation is less than 5% of the value. 

Yes it is my principle private residence and it has been throughout.

I looked at the links and they make no sense to me. 

Thank you so much for your time and effort. Very much appreciated. 

mybestattempt

If the compensation is less than 5% of the value then there is no deemed disposal when the compensation is received.

An adjustment for the amount of compensation is made when the property is actually sold or transferred, however, the PPR will still apply.

I hope your claim for compensation goes well.

BooMiller

Brilliant! Thank you so much for all your help!