Capital gains on sale of business

Capital gains on sale of business

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I am selling my business and have agreed with the purchaser to get the price for assets now (well, February), but to calculate goodwill based on first years turnover, and that is to be paid within 6 months of the end of the first year trading (by end August).

Now, the income will span two financial years. Is is possible then to put the first payment in the 04 tax return and the second in the 05 return, thereby getting two lots of allowance or, as I suspect, does it all go against the 04 year?

Joanna

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By User deleted
06th Jan 2005 11:58

Thanks
That is very helpful - and what I wanted to hear (which isn't what I expected.

It is genuinely split into one quantifiable element and one unknown until turnover is known.

You have made me a very happy (and better off) girl!

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By AnonymousUser
06th Jan 2005 09:11

Taper Relief
As Andrew says, this is not easy, and professional advice may be needed.
The taper relief position is also tricky. If this is a single sale with deferred unquantifiable consideration, the gain arising on the original business asset will probably qualify for CGT taper relief at the more advantageous rates applicable to business assets. However, the 'chose in action' representing the unquantifiable part of the consideration will not be a 'business asset' for taper relief purposes. This will be a matter to take in to account when arriving at a value to place on the 'chose in action' part of the consideration.
Who was it who said CGT was being 'simplified'?

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By andymeeson
05th Jan 2005 11:39

Deferred consideration - hardest part of CGT
It all depends on precisely how the deal is structured.

Basic position: if the sale is a single deal, and the total amount of the consideration is fully known at the start, then all the consideration is taken into account as though it was received on day one - even if some of it is delayed (TCGA 1992 s.48).

Weird stuff: if part of the consideration is genuinely unquantifiable at outset (e.g. by a formula based on turnover or profit during the post-sale period), the unquantifiable part can be treated as a separate asset (a "chose in action"), and the overall gain dealt with on a two-stage basis once the actual sums are known (Marren v Ingles).

Possible alternative: if your sale can be treated as two separate transactions, it may be possible to get the gain spread over two years. The sale & purchase agreement can be structured so that the goodwill will only be sold in August when its value is known. In that way, you get one gain in 04 when you sell the assets, and a sepaarte gain in 05 when you sell the goodwill.

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