Irrecoverable deferred consideration, CGT and connected parties

Irrecoverable deferred consideration and CGT

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A few years ago, 2 brothers owned a trading company 50%/50%. One brother bought out the other brother by creating a holding company and transferring his own shareholding into the holding company. The holding company then purchased the outgoing brother's shares. The purchase consideration was payable in instalments over a number of years. All values were agreed to be open market values at the time. The outgoing brother correctly declared the full amount of the gain at the time and paid the CGT.

Subsequently, the company has run into difficulty and is now insolvent. The outgoing shareholder has only received about 75% of the total amount due and there is no prospect of recovering any further monies.

Normally, the outgoing shareholder would be able to claim to have the original gain re-calculated using the reduced amount of consideration.

My question is would the fact that the brothers are connected parties prevent such a claim being made? My fear is that the original sale of the shares would have been deemd to be at market value and therefore any actual consideration (albeit arm's length in this case) is ignored.

Your thoughts very welcome.



Replies (3)

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By Igor Nankun
24th Aug 2016 18:22

I concur.

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By Jack Spratt
26th Aug 2016 16:32

From what you say it seems that the transaction was actually at market value rather than deemed market value (yes I know they would be the same amount) so provided the amounts involved warrant it I would have a go at recalculating the gain

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Replying to Jack Spratt:
By Ruddles
26th Aug 2016 17:02

I disagree. The law treats the disposal consideration as being market value. This logically presumes that the full amount of that consideration is 'paid' at the time of the disposal. It is illogical to try and impute some form of deferral of the deemed consideration. It doesn't matter that some consideration was actually paid, or payable.

Think about it - if you were right, it would be very easy to circumvent the rules. A agrees to 'gift' an asset to B by selling at market value, B then 'fails' to pay up and A makes a s48 claim. How easy is that?

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