Woodford redress payments - tax treatment?

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I have a client who has received a redress payment following the High Court ruling in February 2024. He has been advised by the portfolio manager that the payment 'acts as a net loss reducer'. However, to my knowledge redress payments are effectively compensation, that it should be treated as such was confirmed by their customer support when I telephoned them, to the contrary of the advice given initially. (I do realise that we should not rely on investment managers' advice hence my initial questioning of the payment to be treated as a net loss reducer.) The client received 5 other payments previously as well. 

The client has proivded the number of units held within the fund in respect of which the lastest payment was received. I have gone on to read HMRC's guidance regarding capital sums derived from assets and I am stuck on the bit where it mentions that before the correct treatment can be applied, the payment has to be identified either as proceeds received on a deemed disposal or damages received from a right of action. I have not come across this before so I find it difficult to apply the guidance to this scenario and I am unsure what other information I would need to be able to establish the correct treatment. 

I am sure my client is not the only one in this position and wonder whether anyone has dealt with this previously? 

Any pointers would be greatly appreciated. Thank you. 

Replies (3)

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By David Ex
31st May 2024 00:20

Are there multiple schemes?

Para 44 here mentions tax:

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Replying to David Ex:
By MinimalDamage
31st May 2024 09:48

Thank you, although it does say that it is the fund's expectation for the payments to be treated as capital distributions.

I could not find any other settlement schemes, just the one that was approved in February 2024.

It appears that the last payment was received following the approval.

The previous 5 payments could have been received as a result of litigation against the portfolio management company as apparently they have been sued for recommending the fund up to the date it collapsed.

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Replying to MinimalDamage:
31st May 2024 11:57

As I understand it the previous payments were a partial return of capital and in all cases lead to a capital loss (you needed to find the proceeds and the cost reduction). The latest payment is a capital gain of the amount of the payment.

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