CGT on damages?

CGT on damages?

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New client's, father lives in USA made his son (new client) a shareholder in his USA business. Shares acquired in 1989 and sold 1995. Cost and disposal precedes around £11k so no CGT. So far so good.

However, father and the USA company involved in a lawsuit that he brought against his former business partner as the original disposal price did not reflect the proper value. After many years, the father won damages in Feb 2005, of which around £40k he has given to his son (new client) in April 2005 as it his relates to his shareholdings. Fathers lawyers have advised father that the tax is payable in the UK and accordingly he has advised his son.

I need to clarify how to treat the funds in the UK?Is this subject to CGT and if yes how do I report it? Am considering, disclosing in 2004/05 tax retune with full explanation.

I would appreciate guidance.
Martin

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By User deleted
23rd Aug 2006 10:48

Whose damages?
I would always be wary about advice from US lawyers on UK tax (and vice versa) but they could well be right. What I would really like to know is, firstly, whether the damages flowed from something in the share sale agreement or contract and, secondly, why seemingly it was just the father involved in the lawsuit and not all shareholders, including the son? These are important points because, I for one, would want to be 100% satisfied that the 40k "given' by father was not just a gift with no CGT implications. Otherwise, if son really had a legal entitlement then ESC D33 (Zim) needs to be looked at to determine if it can be claimed that the "underlying asset" was the shareholding so that reliefs like indexation can be claimed. If the ESC is in point, a fresh computation can be submitted with a reference to the lengthy lawsuit going through US courts.
Anything you want to add to the original question, Martin?

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