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HMRC internal manual

Capital Gains Manual

HM Revenue & Customs
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Deferred consideration: shares and securities: right to receive QCBs

TCGA92/S138A operates differently if the later payments may be made by issuing debentures which are QCBs. If the relevant conditions are satisfied the earn-out right may be treated as a security by TCGA92/S138A. But the notional security is not itself a qualifying corporate bond, see CG58022. 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 indexation allowance continues to run from the date of the share exchange until the QCBs are issued. (Indexation allowance for persons other than companies is only due up to April 1998 - see 50607.) The gain is then released on a later disposal of the QCBs. For further details about QCBs and share exchanges see CG53709.