I have a client who has received an offer of £325k for sale of her shares in her trading company, (qualifying for entrepreneurs relief), structured at £32,500 per annum for ten years.
It's a fairly straight forward deal bar the fact that I need to know the CGT consequences of the deferred consideration.
Can any of you lovely people point me in the right direction, please.................?
Thanks
Replies (7)
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value ascetainable
If the value of the consideration is ascertainable then there is only one disposal. The disposal is the date that the unconditional contracts are signed even though the consideration is not payable for a number of months.
Am not sure whether your gain is post or pre ER.
It would appear that this is the case for your client.
If the consideration is deferred and not ascertainable there are two disposals. (see Marren v Ingles) However, it would appear that this is not the case for you.
agree with above...
installments can be made over 8 years (max amount of time) - see TCGA 1992 s 280 - you will need to write to hmrc for clearance, although i have never done this before but presume similar to getting clearance for general tax payments by installment (I don't believe interest will be charged unless one of the installment payments is made late/after the agreed installment payment date).
Undue Hardship
I believe you would have to demonstrate that the client would suffer undue hardship if it were not for the instalment arrangement.
As an aside this seems like a shocking deal. Has your client discounted the proceeds over the 10 years at, say, 5%? The result would be considerably lower than £325k.
payment by installments
If the proceeds are recieved by installments over a period exceeding 18 months the taxpayer may elect for the cgt to by paid over the shorter of
1. The period of the installments
2. Eight years (TCGA 1992 s 280)
Interest is paid on the outstanding balance.
The taxpayer must elect in writing and the first installment is on the normal due date. No time limit for the election is specified so the normal limit for making an election applies (ie 5 years)
It is probably best however, to make the election before the first payment is made.
Security?
I would think about loan stock in this situation. Ten years is a very long time so you might want to consider the alternatives. You would probably not want to defer your gain because you will want ER up front, however, if there is any possibility of not being paid then perhaps you may consider structuring this so that there is some form of deferral. There may also be employment related securities issues if she stays onboard as director or employee.
Virtual Tax Support for accountants: www.rossmartin.co.uk