Good afternoon all,
I wonder if anyone can point me in the direction of an answer for this scenario please.
A sole director/shareholder sells his LTD business to someone else. An SPA is signed, shares transferred and cash agreed. All is good and I understand the tax implications of that.
Subsequently the new owner uncovers various issues not declared at point of sale and claws back part of the sale value - my question now is, is the outgoing client still taxed on the original sale value, or can the clawback be taken into account as a reduction?
Logic wants to say it's now the lower value, but tax rules don't always follow logic....
I appreciate this is a very busy time of year so I appreciate anyone who has the time to point me in the right direction.
Many thanks
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Replies (4)
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Legal questions first.
Did the sale contract actually have claw-back provisions in it? If so, how were those provisions worded? If not, on what basis has the new owner claimed back part of the sale value?
Spot on
Most properly-drafted SPAs will provide that any clawback is to be treated as a reduction in the consideration. But you'll need to establish exactly what mechanism is involved in this case.
Here is an article re some of the issues.
http://www.gabelletax.com/media/Morrison-and-CGT-on-contingent-liabiliti...
