I don't have nitty gritty detail on this yet, but pointers where to look would be handy.
Sale of shares takes place, with consideration agreed by instalments. Assume that CG declared and ER claimed in the year of disposal.
Purchaser defaults on payment, and so shares are repossessed by seller. No monies are returned, and so the original seller is better off by the value of the payments made plus any increase in the value of the shares.
Assume that we are talking about substantial sums. CG and income tax position for the seller (including ER/withdrawal etc)?
I haven't seen the SPA, and so don't know what conditions regarding final ownership were etc. i.e. Whether or not there was a clause that only transferred ownership on the final payment. Assume straightforward contract for the moment.
Replies (10)
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The chances of actually seeing the SPA are remote.
This is your client and they cannot provide live documents that they must have had? You should consider whether you want to (or indeed should) continue to act.
It's your boss's decision, but... as you have said that substantial sums are involved, I'd suggest avoiding providing any advice without the protection of a contract. Plus that provides the bonus of getting paid for the work.
And (win win win) it means you will find out the facts that will enable you to advise, rather than making it up in a vacuum.
Best for you, best for your boss and best for his/her mate. Win win win squared.
Why is no money returned ? Again is the answer in the SPA?
Tell the CEO that without full facts you can only give him incorrect answers.
A good CEO will respect that
The sale took place. The purchasers owed the consideration and pledged the shares as collateral security?
The failure to pay the vendor does not affect the tax treatment of the sale.You could well have a CGT liabilty greater than the cash received- I can't see any immediate relief for this, although if ER was available on the original sale that may be academic
The acquisition of the shares on failure to pay is a new transaction for CGT, the purchase price being the unpaid consideration. Whether in due course ER would be available on a later sale is a separate question