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HMRC internal manual

Capital Gains Manual

Contingent liabilities: the effect of TCGA92 S49: negative consideration

The consideration for a disposal cannot be negative. It is possible the seller of an asset may have to meet a contingent liability which is greater than the consideration they received. The adjustment due under TCGA92/S49 (2) is to reduce the consideration received to nil. It cannot produce a negative figure. For example in CG14805 suppose the taxpayer had to pay £120,000 under the warranty. The disposal consideration of £100,000 would be reduced to nil. The balance of the payment £20,000 would not be allowed for Capital Gains Tax purposes. The disposal will still give rise to a loss but the loss will be restricted to the base cost of the shares plus incidental expenditure.

A payment received by the purchaser under a warranty or representation will represent a capital sum derived from an asset assessable under TCGA92/S22. This applies whether or not the vendor has had relief under TCGA92/S49. In practice you can reduce the purchaser’s acquisition cost by the amount received. Any excess over the acquisition cost will be taxable, see CG13010 for further guidance.