Zim Properties Ltd contracted to sell three properties. The date of completion was set for a subsequent date. However, completion of the sale of the properties could not go ahead as the original conveyance for one of the properties had been lost and Zim was unable to prove its ownership of the property. The purchaser refused to complete the sale and successfully sued Zim for the return of its deposit. Zim issued a writ to its solicitor claiming damages and, following negotiations, an out-of-court settlement was agreed between the two parties. The Inland Revenue assessed the company on a chargeable gain and Zim appealed, contending that there could be no chargeable gain as the sum received had not been derived from an asset.
It was held that the amount received was a capital sum derived from Zim's rights against its solicitors and that it was acquired otherwise than by way of a bargain at arm's length. Consequently, its market value was a deductible cost in establishing the amount of the capital gain.
Comment – This decision threw up some practical difficulties and, as a result, the Inland Revenue issued ESC D33 (the Zim concession) which can be viewed using 'Downloads'.