CGT on deferred contingent consideration

CGT on deferred contingent consideration

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Client has sold 100% of the shares in his limited company for a headline consideration of £675,000 payable as follows:

1. £275,000 in cash plus £50,000 worth of shares in the acquiring limited company.

2. A further £225,000 payable in cash on the first anniversary of the sale.

3. A final payment of £100,000 after agreement of accounts for the 2 year post acquisition period adjustable depending on actual profits compared to benchmark profits. However, regardless of profits this final payment is subject to a guaranteed minimum value of £50,000 and a maximum value of £400,000.

Am I correct in thinking that the whole £675,000 is declared in year of sale and CGT paid at Entrepreneurs Relief rate of 10%. If the third payment is reduced due to profits being less then the CGT paid on that element can be claimed back from HMRC in the relvant tax year?

Many thanks in advance.

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By gbuckell
15th Aug 2016 11:17

£275,000 - taxed in year of sale
£50,000 in shares - gain rolled into new shares but can elect out of this to be taxed in year of sale at 10% (worth considering if new shares will not qualify for ER)
£225,000 - taxed in year of sale but scope for bad debt relief against original disposal if not received
£100,000 ish - depends on the wording of the SPA but most likely falls in the chose in action rules. This requires that the present value of the right is brought in in the year of sale and that right will be disposed of in a separate transaction when received. Any loss on that later disposal can be carried back but any profit is subject to tax at the time and will only qualify for ER if the purchaser is the vendor's personal company and if he continues to work for a group member.
This does not add up to £675,000!!!

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By gcrowcroft
15th Aug 2016 11:51

Typo on the consideration - should have read £650,000.

Many thanks for your reply.

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