CGT paid on an earnout

CGT paid on an earnout

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My client has received £65,000 in the 2010/11 tax year in respect of the sale of his EMI shares in the unquoted company which he is a director of, as a result of the sale of this company.  There is an earnout of £60,000 which is contingent on the new company which he now works for, meeting certain sales targets in the 2011/12 tax year.  Taking the initial cash received of £65,000 plus the earnout of £60,000 into account, this results in CGT payable of £29,000 in 2010/11.  Am I correct in thinking that if the company fails to meet the target, and my client then does not therefore receive the earnout of £60,000, he will have paid CGT in 2010/11 (£16,800) on something which he has not received, and can only have a carried forward capital loss in 2011/12 for any future disposals?  If this is correct, then it appears to be grossly unfair, as this is a one-off event for my client who is an employee of the company and not a speculative individual.

I would be grateful to hear of any thoughts from others on this,

Thanks

Amanda Lambert

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By petersaxton
03rd Apr 2011 12:41

Take into account an acquisition

 The disposal of an asset for future contingent consideration is a disposal of an asset and the acquisition of a new asset (the right to future consideration) - Marren v Ingles (1980)

http://www.hmrc.gov.uk/MANUALS/cgmanual/cg12070.htm

 

 

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By PennyC
03rd Apr 2011 21:26

TCGA 1992 s279A

is your friend

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By Amanda Lambert
04th Apr 2011 08:38

CGT paid on an earnout

Penny

Thanks - it looks like it is possible to claim a capital loss and carry back to the tax year where the earnout was reported ie in 2010/11 in this case.

Thanks

Amanda Lambert

 

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By pacioli
05th Apr 2011 14:07

s48A TCGA92
I believe the claim may be under s48A TCGA92 as the amount of the deferred consideration is ascertainable, as opposed to s279A TCGA92 which relates to unascertainable consideration

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By Amanda Lambert
05th Apr 2011 21:56

CGT paid on an earnout

Thanks for all the advice.  I shall make a claim to carry back the loss, if the targets are not met.

Amanda Lambert

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By PennyC
06th Apr 2011 07:51

Correct

I didn't read the question thoroughly enough - it's s48A

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