UK: Contract termination fee after failed merger not taxable (First-tier Tribunal decision)
Recent court decision
The First-tier Tribunal (FTT) held in Dialog Semiconductor Limited v HMRC [2025] UKFTT 1188 (TC) that a payment received under a contractual break clause in connection with a merger was not taxable as gain under s22(1)(c) TCGA 1992 (capital sums received in return for forfeiture or surrender of rights, or for refraining from exercising rights).
The FTT found that a forfeiture or surrender of rights required a positive action and, in this case, the taxpayer did not take any action, having just received the payment by virtue of exercise of the contract. The FTT suggested, however, that the payment could have been taxable under s22 TCGA more generally (as opposed to specifically s22(1)(c)) as a capital sum derived from an asset.
Read an October 2025 report prepared by the KPMG member firm in the UK