Check my logic on this please?

Check my logic on this please?

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Client has entered in to a formal agreement to sell his leasehold pub business in two years time. Between now and the sale date the purchaser must run the business in a responsible manner and pay 24 monthly installments. Any default on either of these two requirements in the next two years and the assets remain with the seller and the buyer gets nothing back.

So, this is just like an HP agreement. Assets sale for tax purposes occurs at the commencement of the agreement. What happens for tax purposes if the buyer defaults though? Does he effectively re-acquire the assets using the value of the debt defaulted on by the buyer?

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By mdcallen
23rd Oct 2014 13:25

sale and rescission

Arguably this is an unconditional sale with deferred completion and a right to rescission (in the event of non performance of conditions subsequent). For tax purposes this would mean that:

- if the contract completes, disposal date for tax purposes is the date of signing the contract

- if the contract completes, consideration is taxable in full at the disposal date

- if the contract does not complete, then there is no disposal for tax purposes. The payments received should be taxable in a similar manner to a forfeited deposit, i.e. CGT with no entrepreneur's relief.

I think that the alternative is that it is a conditional contract where disposal only takes place once the conditions are satisfied (i.e. in two years).

The wording of the contract is key.

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