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HMRC internal manual

Capital Gains Manual

Deferred consideration: shares and securities: right to receive QCBs

TCGA92/S138A

TCGA92/S138A operates differently if the later payments may be made by issuing debentures which are Qualifying Corporate Bonds (QCB).  If the relevant conditions are satisfied the earn-out right may be treated as a security by section 138A.  But the notional security is not itself a qualifying corporate bond, see CG58005.  Therefore the ordinary share exchange rules of TCGA92/S135 will apply when the earn-out right is conferred.

When the later payments are made the notional security is exchanged for an issue of QCBs.  This triggers the operation of TCGA92/S116(10).  You compute the gain that would have arisen if the notional security was disposed of at its market value immediately before the issue of QCBs.  Because the notional security is not a QCB, companies and other concerns within the charge to Corporation Tax may be able to claim indexation allowance, (see CG17207) from the date of the share exchange until the QCBs are issued.  The gain is then released on a later disposal of the QCBs.  For further details about QCBs and share exchanges see [CG53709](https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg53709)+.