Taxes Consolidation Act 1997 section 541B

Restrictive covenants

Section 541B provides that payments received for giving or fulfilling a restrictive covenant are treated as chargeable gains for capital gains tax purposes where they are not otherwise taxable as income or as consideration for the disposal of an asset.

• Where a person gives an undertaking restricting their conduct or activities, and a payment is made in respect of that undertaking, the payment is deemed to be a chargeable gain if it is not already taxable under the income tax or capital gains tax codes.
• The chargeable gain is treated as accruing to the person who gave the undertaking, even if the payment is made to someone else, and is taxable in the year of assessment in which it is paid.
• Where valuable consideration other than money is given for the undertaking, the market value of that consideration is treated as though a cash payment of equal amount had been made.
• The provision operates as a sweep-up measure: it only applies where the payment does not already fall within the charge to income tax (under Schedule D or Schedule E) or constitute consideration for the disposal of an asset for CGT purposes.