CG58050 - Deferred consideration: shares and securities: what to consider
TCGA92/S138A
Basic approach
The computations in each case will depend upon the precise combination of immediate and deferred consideration. You will usually need to consider three questions:
What is the immediate charge to capital gains tax?
As well as cash the chargeable disposal proceeds may include the value of the right to receive later payments. You will need to apportion the acquisition cost of the original shares between the different elements of the consideration.
What is the value of the right to receive the later payments?
You will need this either because there is an immediate charge to tax on the value of the right or to apportion the cost of the original shares as referred to in the previous bullet.
What happens when the shares or debentures are issued?
There may be a further liability to Capital Gains Tax (or a loss) if the value of the right when it was conferred gave an immediate charge to Capital Gains Tax. Whether it did or not you will need to establish at what cost any shares or debentures issued in satisfaction of the right are acquired, and how any shares fit into any existing share pool.
Preparing the computation
The most common problem that arises in this subject area is how to prepare the computation. The instructions deal with this by a series of worked examples. Starting with the simplest case they look at the various combinations of immediate and deferred consideration that you are most likely to see in practice. The examples and the features they include are listed below. It is possible you may have to combine features of different examples to fit the facts of your case.
| IMMEDIATE PAYMENT | DEFERRED PAYMENT | S138A APPLIES | PARAGRAPH NUMBERS |
|---|---|---|---|
| Immediate cash | deferred shares | Yes | CG58055 |
| Immediate shares | deferred shares | Yes | CG58060 |
| Immediate cash and shares | deferred shares | Yes | CG58065 |
| Immediate cash and shares | deferred cash or shares | No | CG58075 |
| None | deferred cash and shares | applies only to part | CG58070 |
| Immediate cash and shares | deferred QCBs | Yes | CG58080 |
| Immediate cash and shares | deferred QCBs and shares | Yes | CG58085 |
| Immediate QCBs | deferred QCBs and shares | Yes | CG58090 |
| Immediate cash and shares | no deferred consideration received | Yes | CG58095 |