CG58000 - Deferred consideration: shares and securities: introduction

TCGA92/S138A

This section deals with disposals of shares or debentures in a company (the original company) where:

• some or all of the proceeds are not paid immediately,

and

• the later payments may include an issue of shares or debentures of another company.

Ordinary rules

If a company issues its own shares or debentures in exchange for the shares or debentures in the original company, the ordinary rules are that, provided certain conditions are satisfied, TCGA92/S135 applies to treat the exchange as a share reorganisation.  There is no disposal of the shares or debentures in the original company.  The new shares or debentures inherit the acquisition cost and acquisition date of the shares or debentures in the original company.  For further instructions see .

If the debentures issued by the company are Qualifying Corporate Bonds (QCB) the treatment is different but there is still no immediate charge to tax.  You have to compute the gain that would have arisen if the shares or debentures in the original company had been sold at their market value.  That gain is then realised on a later disposal of the QCBs.  For further instructions see .

Unascertainable deferred consideration

A company may make a later issue of its own shares or debentures in exchange for the shares or debentures in the original company.  If the value of the later issue of the shares or debentures is not known and cannot be calculated at the time of the disposal of the shares or debentures in the original company, then the deferred consideration is unascertainable.

A right to receive unascertainable deferred consideration is an asset for the purposes of TCGA92 which is distinct from shares or debentures (see .  Without TCGA92/S138A, where a customer exchanged his shares in the original company for such a right, and later received shares in another company in satisfaction of the right, the 'no disposal' share exchange rules would not apply.  The 'no disposal' treatment applies to exchanges of shares or debentures for other shares or debentures - not to exchanges involving rights to unascertainable deferred consideration.

You would have to compute the customer’s gains or losses on the disposal of the shares in the original company.  Normally the value of the right would be the consideration for the disposal.  Broadly, the gain or loss would be the difference between that value and the cost of the shares.

You would also have to compute the customer’s gains or losses when the right was satisfied by the later issue of shares or debentures in the other company.  Broadly, the gain or loss would be the difference between the value of those shares or debentures and the value of the right when it was conferred.

Where the conditions of section 138A are met, a right to receive unascertainable deferred consideration to be treated as a security for the purposes of TCGA92, so that the no disposal/same asset share exchange rules can apply to exchanges made by way of such a right as they do to direct exchanges.

If you have any queries about how the valuation of deferred consideration, please refer to Shares and Assets Valuation (SAV).