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HMRC internal manual

Capital Gains Manual

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HM Revenue & Customs
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Deferred consideration: shares and securities: unascertainable

TCGA92/S138A (7)

TCGA92/S138A has in subsection (7) its own definition of unascertainable. The value or quantity of shares or debentures to be issued in pursuance of an earn-out right is taken as unascertainable at a particular time if, and only if

  • it is made referable to matters relating to any business or assets of one or more relevant companies, and
  • those matters are uncertain at that time on account of future business or future assets being included in the business or assets to which they relate.

Thus the number or the value of the shares or debentures to be issued in satisfaction of the earn-out right has to depend on events that take place after the contract date. Those events must concern the business or assets of one or more relevant companies.

Relevant company is defined at TCGA92/S138A (11) as

  • the company whose shares or debentures are to be issued or any company in the same capital gains group,

or

  • the company taken over or any company in the same capital gains group.

FA2000/SCH29/PARA1 amended the definition of a group by removing the condition that only companies resident in the UK could be members of a group (see CG45100+). For the purposes of TCGA92/S138A (11), the question whether the group is defined by reference to the rules before or after the changes in FA2000/SCH29 depends on the date when the earn-out rights were conferred. If the rights were conferred before 1 April 2000, the group for the purposes of TCGA92/S138 (11) is the group as defined under the old rules, consisting only of companies resident in the UK. If the rights were conferred on or after 1 April 2000, the group is the “worldwide” group, without the restriction to companies resident in the UK.