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CGT deferred consideration

When is tax payable in the following scenario?

Client owns 100% of shares in a company and proposes to sell 10% of his holding to another individual at market value. There is a plan to develop and sell the business in a few years, the new investor will be assisting with finding a buyer and will be a director in the company. 

It is proposed that the consideration for the sale of the 10% will be deferred until the whole business is sold, and then paid in full (there will probably be another trigger point built in to the agreement in case it doesn't sell). This will be after the usual date for payment of the CGT arising. Will my client be able to defer payment of tax until consideration is received? It seems that there is provision for such a delay if consideration is payable in instalments, but would this apply where there is just one payment?

Many thanks in advance

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25th Jun 2018 09:32

See s. 48 TCGA. If the whole of the consideration is payable in one sum, it cannot, by definition be an instalment. s.280 cannot therefore apply

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to chicken farmer
25th Jun 2018 10:42

Many thanks for this, I will read the section

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25th Jun 2018 10:35

I agree with chicken farmer. But surely it would not be difficult to structure the contract with a small payment on completion, a large payment on sale and a final small payment on the later of 18 months after completion or, say, a week after sale? That should satisfy s280.

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to gbuckell
25th Jun 2018 10:42

Thanks gbuckell, I was starting to think along the same lines.

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to gbuckell
25th Jun 2018 10:53

Yes it could be structured in that way if the final sale actually takes place - but what if it never happens? The questioner needs to tell us what is intended to happen in that event.

Perhaps, the sale of the 10% could be conditional on a future sale within a specified timeframe? That would defer the disposal - s. 28

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to chicken farmer
25th Jun 2018 11:29

Hi chicken farmer - you have perhaps guessed by now that the plan is still being formulated, but the idea is that if the sale doesn't happen within a certain time frame then the shares revert to the original owner by some mechanism to be decided. If disposal is deferred then presumably New Investor loses the ability to claim entrepreneur's relief, which would probably be a deal breaker.

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to justtoconfirm
26th Jun 2018 08:52

The story so far ...

A is to sell 10% of the shares to B now but will not get any consideration until some unspecified date in the future and only on an onward sale to a third party which may never happen. He doesn't want to pay CGT until he receives that consideration. For this to happen you could provide that the consideration is payable over a period by instalments (assuming B is willing to stomp up the cash before the onward sale) or A's disposal to B needs to be delayed until just before that onward sale. In that event I suspect B would want some assurance that A will transfer the shares.

B however is saying he must get entrepreneurs' relief on his 10% when the onward sale takes place, so he needs to own the shares for at least one year before that onward sale (which no one knows will happen).

This is far too complex a situation to be adequately dealt with in this forum. All in all I think one or other (or both) are going to be disappointed.

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to chicken farmer
26th Jun 2018 09:26

Hi chicken farmer - yes I was certainly not expecting a full consultation on this forum, but you did ask for more info!
Many thanks for your comments they are much appreciated.

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