CG58050 | Deferred consideration: shares and securities: what to consider

From HM Revenue & Customs · Capital Gains Manual

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 PAYMENTDEFERRED PAYMENTS138A APPLIESPARAGRAPH NUMBERS
Immediate cashdeferred sharesYesCG58055
Immediate sharesdeferred sharesYesCG58060
Immediate cash and sharesdeferred sharesYesCG58065
Immediate cash and sharesdeferred cash or sharesNoCG58075
Nonedeferred cash and sharesapplies only to partCG58070
Immediate cash and sharesdeferred QCBsYesCG58080
Immediate cash and sharesdeferred QCBs and sharesYesCG58085
Immediate QCBsdeferred QCBs and sharesYesCG58090
Immediate cash and sharesno deferred consideration receivedYesCG58095