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February 28, 2020

The Tax Treatment of HS2 Compensation

Discussions regarding the development of the HS2 train line have been plagued by controversy and uncertainty. However, with phase 1 of the HS2 line seemingly ploughing full steam ahead from London to Birmingham, one thing is certain: it’s going to be a bumpy ride for the HS2 developers.

With homes, businesses, and nature reserves located along the entire proposed line, HS2 has already caused a large amount of disruption. Those who are affected should receive compensation from HS2 for their loss; indeed, some have already received payments of over £1million.

The receipt of this HS2 compensation is taxable on the recipient (albeit reliefs may be available). This is something that many of those affected may not be aware of.

The tax treatment of the compensation payment is a very complex matter. Firstly, it is important to determine whether the receipt of the compensation is capital or revenue in nature.

If the compensation is related to a fixed capital asset (e.g. land, a house or a warehouse used in a business), it will usually be a capital receipt. However, if the compensation is related to the profits of a trade (e.g. for loss of profit or damage to stock), it will usually be a revenue receipt.

It is possible for the compensation payment to relate to both capital and revenue and therefore the compensation would need to be split appropriately.

This means that a detailed analysis of the compensation payment and the specific circumstances of the recipient is required in order to ensure that the compensation payment is taxed correctly.

We recommend that professional tax advice should be sought by the recipients of HS2 compensation and we are currently working with a client who is in this position. This has enabled us to fully understand the complexities of these receipts and the advice that others may also find invaluable.

If you are affected by the HS2 train line and have received, or will be receiving, a compensation payment, please contact us and we will be very happy to discuss your situation and the ways that we may be able to assist you.

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