188体育

TCGA92/S138A

This example illustrates the computation if an earn-out right is treated as a security by TCGA92/S138A but the customer does not receive the deferred consideration he or she was expecting. In the example the consideration to be received is immediate cash, immediate shares and an unascertainable deferred amount of shares and debentures.

NOTE From 6 April 2008 only companies and other concerns within the charge to Corporation Tax may be able to claim indexation allowance, see CG17207.

FACTS

In year 0 V Ltd acquires all the shares in T Ltd for 拢100,000.

In year 10 V Ltd sells the shares in T Ltd at arm鈥檚 length to P Ltd.

The consideration is

• cash 拢170,000, and
• 60,000 shares in P Ltd at market value of 拢2.10 each (total 拢126,000), and
• the right to a payment of deferred consideration, the amount depending on profits of T Ltd for year 11, to be satisfied only by an issue of shares in or debentures of P Ltd.

The market value of the right to deferred consideration at the time of disposal is agreed by Shares and Assets Valuation at 拢40,000. T Ltd does not meet its profit target and no shares or debentures are issued. The accounts year for year 11 are finalised in year 12.

COMPUTATIONS

A. IMMEDIATE CHARGEABLE GAIN

Description	Action	Calculation	Amount
Cash received	-	-	拢170,000
Less apportioned cost	-	-	-
Cost	x	Cash	-
-	-	-鈥斺赌斺赌斺赌斺赌斺赌斺赌斺赌斺赌斺赌�	-
-	-	Cash + shares + right	-
拢100,000	x	拢170,000	-
-	-	-鈥斺赌斺赌斺赌斺赌斺赌斺赌斺赌斺赌斺赌斺赌斺赌�-	拢50,595
-	-	拢170,000 + 拢126,000 + 拢40,000	-
-	-	-	-鈥斺赌斺赌斺赌�
Unindexed gain	-	-	拢119,405
Less indexation	-	拢50,595 x 0.250	拢12,649
Chargeable gain year 10	-	-	拢106,756

B. COST OF SHARES IN P LTD

Description	Action	Calcualtion	Amount
Apportioned cost	-	-	-
拢100,000	x	拢126,000	-
-	-	-鈥斺赌斺赌斺赌斺赌斺赌斺赌斺赌斺赌斺赌斺赌斺赌斺赌�	拢37,500
-	-	拢170,000 + 拢126,000 = 拢40,000	-
Indexed rise to year 10	-	-	-
-	-	拢37,500 x 0.250	拢9,375
Indexed pool of expenditure	-	-	拢46,875

C. COST OF NOTIONAL SECURITY

Description	Action	Calculation	Amount
Apportioned cost	-	-	-
拢100,000	x	拢40,000	-
-	-	-鈥斺赌斺赌斺赌斺赌斺赌斺赌斺赌斺赌斺赌斺赌斺赌斺赌�	拢11,905
-	-	拢170,000 + 拢126,000 = 拢40,000	-
Indexed rise to year 10	-	-	-
-	-	拢11,905 x 0.250	拢2,977
Indexed pool of expenditure	-	-	拢14,882

D. COMPUTATIONS WHEN DEFERRED CONSIDERATION RECEIVED

The accounts are finalised in year 12. At that point the amount which V Ltd is to receive becomes ascertainable. V Ltd no longer has a right to receive unascertainable deferred consideration.

Description	Amount
Proceeds	Nil
Less cost	拢11,905
-	-鈥斺赌斺赌斺赌�
Allowable loss year 12	(拢11,905)
-	-鈥斺赌斺赌斺赌�

Indexation can鈥檛 create or increase an allowable loss, see CG17700.