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Calculation of CGT on sale of UK business

CGT on sale of business ( unincorporated) where buyer is making stage payments over three years.

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Sale of UK business agreed with payments spread from buyer to seller over three years commencing January 2020. The business is not incorporated and will qualify for Entrepreneurs Relief at 10% rate. Clarification is needed on how the CGT liability on the sale proceeds is established and when it is paid as the payments will span at least three separate and consecutive tax years with no upfront lump sum to the seller.

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By ireallyshouldknowthisbut
09th Jan 2020 15:16

The facts of the case will tell all, but it sounds like the the tax point will be 19/20 if the whole business is being sold now, and the payments coming in over time.

Then you adjust your comp annually if the proceeds are different to your forecasts.

The sales agreement is key.

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Replying to ireallyshouldknowthisbut:
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By [email protected]
09th Jan 2020 15:31

Thanks for the feedback comments. I understand the point about tax point being 2019/2020 BUT if the payments are staged over future tax years then does the seller have to make in effect a CGT payment based upon the whole agreed sale figure, even though they have to wait to receive it?
Tax year 2019/2020 seller claims tax relief at 10% ( Entrepreneurs Relief qualifying) but only receives 3 payments or 3/36 of the agreed sale.
In tax year 2020/2021 seller receives 12/36 of agreed sale payments..can he claim further relief using CGT allowance for that tax year and so on into next tax years?

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Replying to [email protected]:
Psycho
By Wilson Philips
09th Jan 2020 15:48

If it's a single sale, then only one annual exempt amount. You might want to look at section 280 of TCGA 1992.

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By ireallyshouldknowthisbut
09th Jan 2020 16:42

@nick, I am not entirely sure you do follow my point about the tax point being 19/20 if you are still clinging onto the hope that the timing of consideration is going to change it. Its not cash accounting.

The tax point, is the tax point.

From your clients POV perhaps they should have taken appropriate advice prior to selling their business if this is a cash flow issue for them. Given the generous annual CGT allowances and ER relief you state is available I doubt your client will be suffering much of a hardship in this matter given the amount of the receipts that will have on hand by the due date.

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By Vaughan Blake1
09th Jan 2020 16:39

See Marren v Ingles. This looks like a single disposal with staged deferred consideration. This applies even where the consideration is unknown such as with an earn out. The CGT for 2019-20 is thus due in full on 31 January 2021.

The client should however have received 2/3 of the consideration by 31 January 2021, so logically this will more than cover the tax. I would leave the submission of the tax return until the last minute, just in case the purchaser has defaulted, as they frequently do!

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Replying to Vaughan Blake1:
Hallerud at Easter
By DJKL
09th Jan 2020 16:46

Only 13/36ths if monthly payments.

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Replying to DJKL:
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By Vaughan Blake1
10th Jan 2020 10:02

Quite right, I did my reply before the OP commented and revealed his identity! Should still be enough to pay the tax though.

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By Tax Dragon
10th Jan 2020 10:14

I confirm 13 > 3.6

(Though I have to say I have never seen a deal quite like this. [I wonder whether there's something we're not being told.] Anyway I hope the purchaser is aware that the money is going to have to come out of post tax profits... else, as indeed you speculated, the risk of default seems very real.)

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Replying to Vaughan Blake1:
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By Tax Dragon
09th Jan 2020 17:27

It doesn't sound like Marren v Ingles. It's just a direct application of TCGA. Somewhere around s48 - I forget without looking.

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By Accountant A
09th Jan 2020 17:38

If only the seller had taken some professional advice before agreeing the sale.

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Replying to Accountant A:
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By Tax Dragon
10th Jan 2020 06:16

The reference to "at least three" tax years perhaps suggests that this is a planning thread. In which case the only plan that the OP should take from it is the one you suggest - run it by the business accountant.

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By [email protected]
15th Jan 2020 12:28

I am getting conflicting views on option of making payments of the CGT in stages as per section 280 of TCGA 1992 rather than having to pay lump sum in January 2021. Is this still potentially allowable subject to agreement with HMRC?

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Replying to [email protected]:
Psycho
By Wilson Philips
15th Jan 2020 13:26

There’s no reason why it shouldn’t be available in principle. However in virtually every similar case I’ve seen by the time the first tax payment is due (the normal payment date) sufficient consideration has been received to cover the whole tax charge using the 5O% ‘rule’.

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Stepurhan
By stepurhan
15th Jan 2020 13:57

Quote:

I am getting conflicting views on option of making payments of the CGT in stages as per section 280 of TCGA 1992 rather than having to pay lump sum in January 2021. Is this still potentially allowable subject to agreement with HMRC?

What conflicting views are you getting?

Because section 280 appears quite clear. You have be able to make a case that paying tax on a single disposal would cause undue hardship. Can you do that or is it just that your client doesn't want to pay the tax when it is due?

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Replying to stepurhan:
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By Tax Dragon
15th Jan 2020 14:11

Step, mate, I'm going to buy you some new legislation. It hasn't said that for 20 years or more. (Even gov.uk is more up to date!)

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