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HMRC internal manual

Capital Gains Manual

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Deferred consideration: unascertainable: example

FACTS

The vendor acquired the asset (goodwill) in April 2003 for £100,000.

The vendor sells the asset at arm’s length to the purchaser on 30 April 2011.

The consideration is

  • cash £500,000, plus
  • the right to two payments of deferred consideration in cash, the amount depending on the profits of the business for the next two years.

The market value of the right to deferred consideration at the time of disposal is agreed by Shares and Assets Valuation at £300,000.

In September 2012 the vendor receives £220,000 in part satisfaction of the right to deferred consideration. The market value of the remainder of the right is agreed by Shares and Assets Valuation at £90,000.

In October 2013 the vendor receives £150,000 in full satisfaction of the remainder of the right to deferred consideration.

COMPUTATION

A: IMMEDIATE CHARGEABLE GAIN

Consideration received cash (500,000) plus value of right (300,000)     £ 800,000
       
LESS Cost   £ 100,000
  CHARGEABLE GAIN 2011-12 £ 700,000

B: WHEN DEFERRED CONSIDERATION RECEIVED

September 2012      
       
  Consideration   £ 220,000
Less Apportioned cost 300,000 x 220,000  
(220,000 + 90,000) £ 212,903      
    Chargeable Gain 2012-13   £ 7,097
    Consideration   £ 150,000
  LESS Cost 300,000 - 212,903 £ 87,097
    CHARGEABLE GAIN 2013-14   £ 62,903

There are more examples where the asset sold is shares or debentures in CG58000+