Beta This part of GOV.UK is being rebuilt – find out what this means

HMRC internal manual

Capital Gains Manual

From
HM Revenue & Customs
Updated
, see all updates

Chargeable assets: intangible assets: rights to deferred consideration

The right to receive a future sum may be an asset

Where an asset is disposed of and any or all of the consideration is payable at some later date, you have to consider whether the deferred element is

  • a simple debt or
  • a right to a further capital sum or
  • a right to a future income sum.

These instructions tell you about rights to future sums. CG14850+ tell you about deferred consideration generally.

The concept of a right to a future sum as an asset comes from Marren v Ingles (54TC76). In that case, the consideration for the disposal of shares included a right to receive deferred payments. This was described as “a possible liability to pay an unidentifiable sum at an unascertainable date.”

The shares were disposed of, and acquired, for consideration in the form of the cash which was paid and the creation of incorporeal property, the right to the future sum. The amount of the right to that future sum formed part of the consideration for the disposal of the shares. The obligation to pay the deferred consideration was a chose in action and by virtue of section 22(3) TCGA 1992 and the words “notwithstanding that no asset is acquired” in that section extend, rather than limit, its effect.

When the right matured and the further sum was paid, the right was extinguished and there was a deemed disposal of the right because section 22(1) TCGA 1992 applied.

Acquisitions

Where an asset has been disposed of and any part of that consideration is unascertainable, the right to that part of the consideration is itself an asset. If the right was acquired on or after 10 March 1981, it is acquired at the same value as is placed on the amount taken into account as the unascertained amount (see section 17(2)(a) TCGA 1992 and CG14550+).

Disposals

Where an asset has been disposed of and any part of that consideration is unascertainable, the right to that part of the consideration is itself an asset. When that further consideration is received, that represents consideration for the disposal of the right, not the original asset.

Where the further consideration is itself received over a period, each receipt is treated as a part disposal of the right.

Right to a series of income payments

In the same way that a right to future capital payments can be an asset for chargeable gains purposes, a right to future income payments can also be an asset, Rank Xerox Ltd v Lane (53TC185), see CG12615.

If, therefore, an asset is disposed of for a series of income payments, the capitalised value of the right to those payments is also taken into account in the computation of the gain on the disposal of the original asset, see section 37(3) TCGA 1992 and CG14873+.

You should note, however, that this may not apply to payments, such as rental payments under a lease, which do not have the character of annual payments.