CG14933 | Deferred consideration: ascertainable: claims that consideration is irrecoverable

Under Self Assessment the requirement that the vendor must show to the satisfaction of the Inspector that consideration has become irrecoverable has been deleted from the legislation. Instead the vendor must simply be able to demonstrate as a fact that some part of the consideration has become irrecoverable. If any part of the consideration proves to be irrecoverable, and a claim to that effect is made, the required adjustment can be made, again by way of discharge or repayment of tax or otherwise.

An application for relief under Section 48 is a claim to which TMA70/S42 applies. To determine a claim it is necessary to identify

• the disposal and the tax charge to which the claim relates,

• the event which gives rise to some or all of the consideration becoming permanently irrecoverable,

• the amount of the consideration that is irrecoverable, and

• the adjustment in tax to be made in favour of the claimant.

The time limit for a claim runs from the time at which the consideration becomes irrecoverable.

For example, a contract for the sale and purchase of shares is made on 15/03/2019. The contract provides for £1 million of consideration to become payable on the first three anniversaries of the contract being made. The first and second payments of deferred consideration are paid as per the contract, but following that the purchaser gets into financial difficulties and becomes insolvent. On 29/06/2023, the liquidators for the purchaser report than unsecured creditors won’t receive anything. The vendor is an unsecured creditor. The four year time limit for the vendor to make a claim under S48(1) runs from 29/06/2023 when the consideration became irrecoverable.