Zim Properties Ltd v Procter [1985] STC 90

Facts

  • Zim Properties Ltd acquired shares in a company that might have possessed a legal claim against its auditors for negligence.
  • The company subsequently sold the shares, including the associated right to pursue legal action, to another party.
  • Tax authorities contended that the right to sue constituted a separate asset, and its disposal led to a taxable gain under capital gains tax (CGT).

Issues

  1. Whether the right to sue for negligence could be regarded as a separate, taxable asset for capital gains tax purposes.
  2. Whether a legal claim, when transferred together with property, is distinct from property-tied rights for the purposes of CGT.
  3. How to distinguish between standalone legal claims and those connected to property in the context of CGT.

Decision

  • The High Court held that the right to sue for negligence was not a distinct asset separate from the shares and thus not separately chargeable to tax under CGT.
  • The court distinguished between personal legal claims (which are not transferable or taxable as assets) and claims tied to property, finding the former fall outside CGT.
  • The sale of shares and the right to sue, considered together, was treated as a single transaction for capital gains tax purposes, not as separate disposals.

Legal Principles

  • Not all legal rights qualify as taxable assets for capital gains tax purposes; for a legal right to be a taxable asset, it must exist independently of other property.
  • Standalone rights to sue, which are unconnected to property, are not taxable assets for CGT purposes.
  • Legal rights attached to or arising from property (e.g., rights to recover debts) may be transferred and can give rise to CGT liability upon disposal.
  • When a legal right is incidental to the transfer of an asset, it forms part of the asset sale for CGT assessment.
  • The origin and nature of the right must be examined to determine its tax treatment on transfer.

Conclusion

The court in Zim Properties Ltd v Procter confirmed that a right to sue constitutes a taxable asset for capital gains tax only when it is connected to property being transferred; standalone legal claims remain outside the scope of CGT, a principle impacting subsequent asset transfers involving legal rights.

The answers, solutions, explanations, and written content provided on this page represent PastPaperHero's interpretation of academic material and potential responses to given questions. These are not guaranteed to be the only correct or definitive answers or explanations. Alternative valid responses, interpretations, or approaches may exist. If you believe any content is incorrect, outdated, or could be improved, please get in touch with us and we will review and make necessary amendments if we deem it appropriate. As per our terms and conditions, PastPaperHero shall not be held liable or responsible for any consequences arising. This includes, but is not limited to, incorrect answers in assignments, exams, or any form of testing administered by educational institutions or examination boards, as well as any misunderstandings or misapplications of concepts explained in our written content. Users are responsible for verifying that the methods, procedures, and explanations presented align with those taught in their respective educational settings and with current academic standards. While we strive to provide high-quality, accurate, and up-to-date content, PastPaperHero does not guarantee the completeness or accuracy of our written explanations, nor any specific outcomes in academic understanding or testing, whether formal or informal.
No resources available.

Job & Test Prep on a Budget

Compare PastPaperHero's subscription offering to the wider market

PastPaperHero
Monthly Plan
$10
Assessment Day
One-time Fee
$20-39
Job Test Prep
One-time Fee
$90-350

Note the above prices are approximate and based on prices listed on the respective websites as of May 2025. Prices may vary based on location, currency exchange rates, and other factors.

Get unlimited access to thousands of practice questions, flashcards, and detailed explanations. Save over 90% compared to one-time courses while maintaining the flexibility to learn at your own pace.

All-in-one Learning Platform

Everything you need to master your assessments and job tests in one place

  • Comprehensive Content

    Access thousands of fully explained questions and cases across multiple subjects

  • Visual Learning

    Understand complex concepts with intuitive diagrams and flowcharts

  • Focused Practice

    Prepare for assessments with targeted practice materials and expert guidance

  • Personalized Learning

    Track your progress and focus on areas where you need improvement

  • Affordable Access

    Get quality educational resources at a fraction of traditional costs

Tell Us What You Think

Help us improve our resources by sharing your experience

Pleased to share that I have successfully passed the SQE1 exam on 1st attempt. With SQE2 exempted, I’m now one step closer to getting enrolled as a Solicitor of England and Wales! Would like to thank my seniors, colleagues, mentors and friends for all the support during this grueling journey. This is one of the most difficult bar exams in the world to undertake, especially alongside a full time job! So happy to help out any aspirant who may be reading this message! I had prepared from the University of Law SQE Manuals and the AI powered MCQ bank from PastPaperHero.

Saptarshi Chatterjee

Saptarshi Chatterjee

Senior Associate at Trilegal