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business asset relief

two payments

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I am wondering if anyone has come across a business sale paid for in two installments? 

Client runs a successful cafe/takeway as a partnership, it has been in the family for years he now wants to sell up. It has been on the market for a couple of years with little interest fom potential buyers.

He is now considering an offer where half the asking price is paid now and half in two years, he tells me that the contract is water tight and that if the buyer cannot pay the second instalment that everything returns to him.

To be honest its not something I have come across before, thinking as I type I suppose my first course of action should be to see the contract - the completion date and how the contract is worded must have an impact on how CGT is payable?

I am also wondering if the client risks not qualifing for business asset relief and any complications it could cause if he wants to holdover the gain.

I am rambling! if any one has any experience of a similar transaction any input/help would be much appreciated.

 

Jonathan

 

 

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By Tax is always taxing
27th Jan 2022 13:57

Deferred consideration is quite normal in a lot of business sales. Especially EOTs / MBOs etc

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paddle steamer
By DJKL
27th Jan 2022 15:02

"He is now considering an offer where half the asking price is paid now and half in two years, he tells me that the contract is water tight and that if the buyer cannot pay the second instalment that everything returns to him."

Well, in my experience no contract is "watertight" , other party dies, is declared bankrupt or wrecks business whilst he /she controls it etc etc.

If property involved re this disposal when does title change, does your client hold a first ranking security over same?

Of course these are really the solicitor's concerns but your clients categoric expression of it being "watertight" would fill me with dread.

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Replying to DJKL:
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By jonibarnes
27th Jan 2022 16:33

Those are the kind of concerns I have been thinking about, I was also wondering if the treatment of the first instalment would change from capital to revenue income if the second payment doesn't happen and everything returns to him.

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Replying to jonibarnes:
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By RFL H
28th Jan 2022 10:29

It should become clearer when you see the legal agreement - the business might be sold on day 1 (in which case it is chargeable on the full price in that tax year) or it might be some other arrangement.

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