Unpaid consideration

Unpaid consideration

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Client sells a property in 2007-08 (non-PPR) for £650K - CGT paid accordingly.

The purchaser is £70K short and so a loan agreement is effected between the vendor and the purchaser to allow repayment of the balance over a period of time.   The purchasers have now defaulted on the loan (bankruptcy, we think).

Is there any way we can go back and amend the disposal proceeds (and get a refund of CGT) on the basis that the consideration has changed to £580K?  Or are we stuck with a £70K capital loss to carry forward?  Or does it depend on what the sale contract or loan agreement says?

Many thanks

Replies (8)

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By Steve Kesby
08th Oct 2013 11:58

You can claim the tax back

Under S. 48(1) TCGA 1992.

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Replying to Mr Hankey:
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By Swedish Chef
09th Oct 2013 09:17

s48

Steve Kesby wrote:

Under S. 48(1) TCGA 1992.

Thanks, Steve. 

I've had a read through that and the Revenue Manuals on this - from what I can gather a claim is made by letter, rather than as an adjustment on the Tax Return in which the consideration is irrecoverable.  Would you agree?

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By johngroganjga
08th Oct 2013 12:00

Were the vendors not advised to take a charge over the property to secure the unpaid consideration?! 

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Replying to AlgernonB:
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By Swedish Chef
08th Oct 2013 12:07

Yes

johngroganjga wrote:

Were the vendors not advised to take a charge over the property to secure the unpaid consideration?! 

They were - and indeed they did, albeit not this particular property.  The loan was originally nearer £300K and they put a charge on the purchaser's only asset - their home - but when realised it fell £70K short. Hence the need for a loan agreement for the balance.

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By Steve Kesby
09th Oct 2013 11:20

Yes

The irrecoverability of part of the proceeds means that you've historically self-assessed too much tax, in a year which may be "closed".

So S. 48 involves a claim, which can be given effect by repayment of tax. See CG14933 and SACM3015.

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By andrew.hyde
09th Oct 2013 11:37

Swedish meatballs

Just a note of caution - would the decision in Coren v Keighley affect this?

In that case the court found that if the whole or part of the proceeds of a sale were lent by the vendor to the purchaser there had been two separate transactions

a sale of the asset by the vendor to the purchaser with full consideration paida grant of a loan by the vendor to the purchaser.

If so, the key is obtaining the full and complete facts, by examining all the documents.

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By Swedish Chef
09th Oct 2013 11:50

Loan Agreement

The loan agreement states "The borrowers owe the lender the sum of the loan being unpaid consideration (my emphasis) due to the lender from the sale of ........"

In my mind, it is clear that part of the consideration has been deferred - as opposed to full consideration being received in part by way of a loan and thus two separate transactions.  Therefore I do not think Coren v Keighly would bite.

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By andrew.hyde
09th Oct 2013 12:06

More meatballs

I'm sure you're right, but it might be important to look at what the rest of the agreement says.

Often there is a part of an agreement that sets the scene, traditionally prefaced with the word 'whereas' (though modern agreements often go for something plainer and less archaic).  After the scene-setting comes the essence of the agreement, in the form of an exchange of promises.

This sounds like part of the scene-setting. 

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