Compensation - taxable?

Username03725

I'm joint owner of a smallholding, a few years ago a water co laid a pipe across it despite our protests over devaluation of the land from a potential sale to commercial developer. That claim is now settled in our favour and has been shared between the co-owners. The commercial sale is still a possibility but is not currently active.

Is this compensation for a perceived loss taxable, and is it required to include it on 24-25 Tax Returns? In terms of value it's a few month's salary so not life-changing but losing 20%+ would be a bind.

Jeremy535897

The compensation derives from an underlying asset and is therefore treated a capital gains tax part disposal of the land.
You may find this helpful:
https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg71870

Username03725

Thanks, but that example seems to reflect an actual disposal of part of a larger area of land.

In this case the land is still wholly owned. The compensation reflects a perceived loss of future value if sold as a commercial development opportunity and not as agricultural land. Were it to be sold as agricultural land in the future there is no loss. 

Username03725

Thanks Jeremy and Mctt, it is ultimately what I expected in truth. 

Jeremy535897

Username03725 said:

Thanks Jeremy and Mctt, it is ultimately what I expected in truth. 

If it fits within the small part disposal rules, it means no tax. That didn't seem to be what you were expecting.
I would add that if the capital gain you calculate is less than your otherwise unused annual exemption, you would be better declaring the gain as then you waste no base cost.