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HMRC internal manual

Capital Gains Manual

Deferred consideration: shares and securities: ascertainable

TCGA92/S138A(5)&(6)

A right conferred on or after 10 April 2003 is treated as a security automatically when the conditions described in CG58005 or CG58025 are met.  However customers can elect not to have their earn-out rights treated as securities under section 138A(2A) or (4A).

The election must be made by notice in writing given to an officer of the Board

  • in the case of a company within the charge to CT, within two years of the end of the accounting period in which the right is conferred – section 138A(5)(a),
  • in any other case, the first anniversary of 31 January next following the year of assessment in which the right is conferred – section 138A(5)(b).

There is no prescribed form for the election.  An election out of the assumed security status is irrevocable – section 138A(6).

Only the vendor of the shares or securities who acquires the right to unascertainable deferred consideration may elect under section 138A, out of the assumed security treatment.  If the right passes to another person (for example a no gain/no loss transfer between spouses or civil partners) the person now having the right cannot elect.

Rights conferred before 10 April 2003

For rights conferred before 10 April 2003 an election had to be made for it to be treated as a security.  Contact the Capital Gains Technical Group in Solihull if you need guidance on a right conferred before 10 April 2003.