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CGT on deferred consideration

Client sold land in 10/11.

The contract included £60,000 which would be paid contingent on there not being contamination of land which the buyer was developing. ie if extra work in removing the contanimation was £40K then the seller would receive £20K.

The full 60K was received in 11/12, there has been no withold of this retention.

When should this 60K be taxed.

I think 10/11 on the basis that it's ascertainable. It's not a Marren Ingles thing as it's known but the "60K when condition is met" is muddying my thinking.



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Contingent and ascertainable.  Therefore taxable in year of exchange.  No Marren v Ingles.

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Are you sure?

Strikes me that at the date of disposal not all the events which determined the amount of consideration had happened - namely that the amount of additional consideration was dependent upon the extent of post-completion decontamination costs. Just a thought.

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I would agree with lynet

there was a concluded contract for the property.  the only thing not determined was the final price.

thus not much different to ascertainable deferred consideration.


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TCGA 1992 s 48(1) deals with contingent consideration, and there is nothing to say that all of the events which determine the contingent consideration have to have happened.  It does however, say that if the contingency does not happen an adjustment will be made.

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Not legislation I know, but ....

... CG14886

I suppose it could be argued that the amount of consideration is based on the amount of decontamination work required, which is in turn dependent on the amount of contamination which was present at the time of disposal. I consider that to be too tenuous, however. The final amount of consideration is directly dependent upon post-completion events, ie work/costs arising after disposal date.

There are 2 possibilities here:

Purchaser agrees to pay £x plus £60k, the additional £60k subject to there being no decontamination work required. The £60k is ascertainable.

Purchaser agrees to pay £x plus £y (up to a maximum of £60k), y being dependent upon the amount of decontamination work (and associated costs) required. Subject to the possible argument about which events determine y, y is unascertainable at the date of disposal.

It seems that the OP's situation is aligned nore closely to the second of those scenarios.

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Look at CG 14885.  The first

Look at CG 14885.  The first point seems to disagree with CG14886.  I am not sure whether CG14886 even agrees with the legislation.  TCGA 1992 s48 does not say all of the events which have to happen, must happen before the date of disposal.

In this case, the amount which the client will receive is known at the date of exchange.  You could even say that they had happened, but that you did not actually know they had happened.  The first point in 14885 seems to actually disagree with 14886, because the profits have not actually happened yet.

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Knowledge of amount

LyneT wrote:

In this case, the amount which the client will receive is known at the date of exchange. 


14885 does not disagree with 14886. 14886 simply confirms that for ascertainable consideration all events which determine the amount have already happened. In the first example at 14885, whether or not the contingent consideration is received the amount is known at the date of disposal. In the OP's case, the maximum amount may be known, but the actual amount is not known. HMRC make it quite clear that the existence of a maximum amount does not have a bearing on whether an amount is ascertainable or not.

blok - in this case we are dealing with consideration that is contingent and deferred

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as you know - deferred is not the same as contingent

i think in the case of the op we are looking at contingent, rather than deferred (despite my lazy drafting above).


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taking a step back

the purchaser has inserted a clause in the contract whereby he retained £60k from the price on the condition that the land was not contaminated.  almost like a retention.

the £60k didn't belong to the seller until such time that the condition was satisfied.

therefore it does appear to be that the amount of consideration was not ascertainable until that condition was satisfied.  when it was satisfied the amount was determined under the contract and the payment made.

I retract - bkd does appearto have analysed this correctly -  we have unascertainable consideration and we are in marren v ingles.  The £60k quantum is a bit of a red herring.


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To clarify, blok

If it was all or nothing, ie the seller would receive or would not receive £60k depending on contamination, then the amount is ascertainable - because it is known what would be received if the contingency conditions were/were not met.

We don't know exactly what the terms of the contract were in this case, but it sounds as though the figure receivable could have been any amount between £0 and £60k. Therefore, unascertainable.

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What the OP is describing is essentially a formula.

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Thank you to everyone.

My "muddying thinking" was from distant past of exams and "exchange takes place when that condition is satisfied", ie a 2nd disposal. But that is too generous so client would need to value the right to that 60K and tax it in 10/11.

ie it is Marren Ingles which is what you have all got to.



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out of interest - the tax point is 10/11 - what was reported in that year?

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Err, I never said it was my client! I was helping another firm yesterday and through a spanner in the works when I said that it should all have been taxed in 10/11.

But the sale of the land was declared in 10/11 by this firm - TR sent to client - then the client went to HMRC to check (actually visited the local office) and was told that the 60K didn't need to be declared in 10/11, So my friend deducted it from the proceeds.

Does this answer you?

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err. i never said it was your client either.

i was just getting at whether a valuation had been previosuly done on the £60k because I would have been interested in the approach to the valuation method.

err. never mind.

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Point taken, I was just being on the defensive.

I have now got to amend the 10/11 TR and I will be declaring 2 disposals with proceeds of 60K. Had this been done properly in Jan 12 it may have been the case that much of the digging was done and they'd already determined that there was no clawback on the retention. In fact the 60K was received just 5 months later in May 2012. Not exactly a magic wand but I would have, and now will, declare the value of the right as 60K.

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HMRC are only partly correct

Seems that they agree with my analysis. But that still leaves the question of valuing the the right to receive the contingent amount. I'd be surprised if HMRC accepted that there was no value to it, so would have thought that at least some of the £60k ought to have been effectively assessed in 2010/11.

[EDIT] - This had been sitting in draft for a while and was posted after the subsequent responses above

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Why £60k?

At the time of disposal, there must have been uncertainty as to how much would be received. There is also the time value of deferral to take into account (albeit pretty insignficant in this case). Without knowing the exact circumstances, I'd be comfortable in knocking at least £10k off the £60k - bringing £50k into account in 2010/11. Provided not otherwise used, that will then give you a further annual exemption in 2011/12. [EDIT - 2012/13, see below]

NB - why "5 months later"? The relevant date is the date of disposal, not the date of preparing the tax return. You say disposal was in 2010/11, and £60k was received in May 2012. Therefore, at least a full 12 months to consider time value of money. (And May 2012 is in 2012/13 not 2011/12.)

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Whoops yes May 11. was when the 60K was in fact paid.

Which surely suggests that the value is 60K as by the time the TR would have been prepared it was known tha the full amount was in fact received.

I'm as flexible an accountant as they come but I don;t think I'd be confident in knocking off an arbitrary 10K.  That said, you have now brought up (reminded me) that a disposal in 11/12 need to be declared between 60K and the value of the right. Yes, with time value of deferral (to be honest right now I don;t know the disposal date in 10/11), then a few K can be knocked off which would save 10, or 28% of that discount.

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HeavyMetalMike wrote:

Which surely suggests that the value is 60K as by the time the TR would have been prepared it was known tha the full amount was in fact received.

TR date not relevant. You need to consider what was known, or could be expected to have been known, at the time of disposal. Hindsight is a wonderful thing, but it doesn't apply in this case.

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If there was a formula in the contract, then I would agree that the consideration is not ascertainable at the time of exchange.

However, from reading the posting, it does not seem to me that there is a formula in the contract. ie you get x if y happens but only another amount if y does not happen.

If you look at cg 14885 it says £50k is receivable if profits exceed £100k.

CG 14886 it says "The defining feature of ascertainable deferred consideration is that all of the events which affect the AMOUNT occur before the date of the disposal." 

The receiving of £100k in profits has not occurred before the date of disposal.

There is also nothing in the legislation which says that all of the events which affect the amount occur before the date of disposal.

As I said, if there was a formula in the contract, then, agreed, it is unascertainable.  But the way I read it, there is no formula.  Am I wrong, as I appear to be the sole voice of dissent?


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No you're not wrong in regards to what you're saying. Yes the 60K didn't complete until 11/12 as that condition wasn't met until then.

But going back to first principles in 10/11 the sold land plus received a right to that 60K.

Hence one disposal overall in 10/11 with two lots of proceeds to be taxed in 10/11.

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OK, LyneT

Put yourself in the seller's position, at the date of sale, in the OP's situation. Tell me how much you expect to receive from the sale. Assume that you believe there to be some contmaination, but you don't know how much.

s48 may not explicitly state that all events determing the amount need to have happened - but that is the view of HMRC and is one that has long been accepted by everyone. Everyone but one it would seem.

The receiving of £100k in profits has not occurred before the date of disposal

Doesn't matter. You are confusing an event which crystallises the payment of the deferred consideration with the determination of the amount of the deferred consideration. In that example, the amount of deferred consideration is known, regardless of whether or not it ends up getting paid. In this particular case, the amount is not known at the date of disposal. You suggested in an earlier post that the seller did know how much he would receive. So I repeat - how?

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Dates - again

I wasn't referring to the separate chargeable disposals. I was referring to the fact that although circumstances may have been crystallised by the time the TR is prepared (and the amount of actual consideration then known) what matters is the value of the right at the date of original disposal. The fact that by the time the TR is prepared you know the full £60k has been received is irrelevant. At the time of the first disposal, there must have been uncertainty as to what would be received, and so the value of the right must have been less than £60k.

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I accept what you say although a deduction for 10,600 just seems a bit obvious. Of course it all depends on the tax rate in 11/12 doesn't it too!!! I mean he's probably not higher rate in 11/12 but was in 10/11. I'll see how much I can bodge.

Thank you BKD

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