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HMRC internal manual

Capital Gains Manual

Deferred consideration: shares and securities: introduction

General guidance on the subject of deferred consideration is at CG14850+. There is necessarily some overlap between the guidance in this section and that at CG14850+. This section covers particular problems which arise because either

  • the share exchange rules of TCGA92/S135, see CG52500+,


  • the qualifying corporate bond (QCB) legislation in TCGA92/S116, see CG53709+

would normally apply to an issue of shares or debentures in exchange for other shares or debentures so that no gain or loss accrued until there was a disposal of the shares or debentures acquired in the exchange.

The problems arise if the deferred consideration is unascertainable. A right to receive deferred unascertainable consideration is an asset for Capital Gains Tax purposes which is distinct from shares or debentures - see CG14950+. So if a taxpayer exchanged his shares in a company (the original company) for such a right, and later received shares in another company in satisfaction of the right, the ‘no disposal’ share exchange rules would not apply. The ‘no disposal’ treatment applies to exchanges of shares or debentures for other shares or debentures - not to exchanges involving rights to deferred unascertainable consideration. There would be two occasions when you had to compute the taxpayer’s gains or losses:

  • On the disposal of the shares in the original company. Normally the value of the right would be the consideration for the disposal. Broadly, the gain or loss would be the difference between that value and the cost of the shares;
  • When the right was satisfied and shares in the other company were issued. Broadly, the gain or loss would be the difference between the value of those shares and the value of the right when it was conferred.

TCGA92/S138A allows such a right to be treated as a security for the purposes of Capital Gains Tax so that the share exchange and QCB rules can apply to exchanges made by way of such a right as they do to direct exchanges.