Hello fellow accountants!
First of all, thank you for taking the time to look at this post.
I have a question regarding compensation for a failed property deal.
I have a client who was going to sell some land he personally owns overseas however the deal didn’t go through but they were given £20,000 in compensation for the deal not going through and messing them around.
The client is adamant that the £20,000 isn’t taxable because they paid £100,000 for the land originally and as they haven’t sold the land there is no profit. I have tried to explain that as they haven’t exchanged an asset for the £20,000 it’s a receipt that should be taxed in the current period. They think it should be held over until the land is sold!
I have spoken to another accountant and he agrees that it is taxable in the year it is received but thought it should be taxed under income tax and not capital gains!
I have never had this crop up before and am struggling to find any references or examples that I can give to the client that explains the situation. The only thing I can find is on business compensation or personal injury compensation. Which is the reason for my post, I am hoping that maybe someone here has had a similar situation or could suggest some references I could look at.