188体育

TCGA92/S138A

This example illustrates the effect of TCGA92/S138A if the customer receives an immediate issue of debentures, which are Qualifying Corporate Bonds (QCBs), and an unascertainable deferred amount of shares and debentures, which are also QCBs.

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

• debentures of P Ltd to the value of 拢300,000
• the right to a payment of deferred consideration, the amount depending on future profits of T Ltd, 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250,000.

In year 11 shares in P Ltd to the value of 拢169,000 (44,591 shares at 拢3.79 each) and debentures in P Ltd to the value of 拢86,000 are issued in full satisfaction of the right to deferred consideration.

All of the debentures issued are QCBs.

All of the conditions are satisfied and the earn-out right is treated as a security by section 138A.

COMPUTATION

A. COMPUTATION OF HELD OVER CHARGEABLE GAIN

Description	Action	Calculation	Amount
Market value of part of original holding	-	-	-
( = value of the debenture)	-	-	拢300,000
Apportioned cost	-	-	-
拢100,000	x	拢300,000	-
-	-	-鈥斺赌斺赌斺赌斺赌斺赌斺赌斺赌�-	拢54,545
-	-	拢300,000 + 拢250,000	-
Unindexed gain	-	-	拢245,455
Indexation	-	拢54,545 x 0.250	拢13,637
Held over gain	-	-	拢231,818

B. COST OF NOTIONAL SECURITY

Description	Amount
Cost 拢100,000 - 拢54,545	拢45,455
Indexed rise to year 10	-
拢45,455 x 0.250	拢11,364
-	-鈥斺赌斺赌�-
Indexed pool of expenditure	拢56,819
-	-鈥斺赌斺赌�-

C. COMPUTATIONS WHEN DEFERRED CONSIDERATION RECEIVED

i) Computation of held over gain on debenture

Description	Action	Calculation	Amount	Total
Market value of part of notional security	-	-	-	-
( = value of the debenture)	-	-	-	拢86,000
Apportioned cost	-	-	-	-
拢45,455	x	拢86,000	-	-
-	-	-鈥斺赌斺赌斺赌斺赌斺赌斺赌斺赌�-	拢15,330	-
-	-	拢86,000 + 拢169,000	-	-
Indexation (year 0 to year 11)	-	-	-	-
-	-	拢15,330 x 0.281	拢4,308	拢19,638
-	-	-	-鈥斺赌斺赌�-	-鈥斺赌斺赌斺赌�
Held over gain	-	-	-	拢66,362

ii) Computation of cost of shares issued

Description	Amount
Cost 拢45,455 - 拢15,330	拢30,125
Indexed rise to year 11	-
拢30,125 x 0.281	拢8,465
-	-鈥斺赌斺赌�-
Indexed pool of expenditure	拢38,590
-	-鈥斺赌斺赌�-

EXPLANATION

A. IMMEDIATE ISSUE OF QCBS

A chargeable gain is calculated in respect of the debenture received which is a QCB. This gain is held over until the debenture is disposed of (TCGA92/S116(10)). This is often when the debenture is redeemed.

B. RIGHT TO UNASCERTAINABLE DEFERRED CONSIDERATION

The right to the deferred consideration constitutes the 鈥榥ew holding鈥� under TCGA92/S127 by virtue of TCGA92/S135(3) and section 138A.

C. COMPUTATION WHEN DEFERRED CONSIDERATION RECEIVED

When shares and QCBs are received in satisfaction of the right:

• the issue of shares is treated as a conversion of securities within TCGA92/S132 under subsection (3)(d) of section 138A

section 116(10) applies to the exchange of the remaining part of the right to deferred consideration for the QCBs. The held over gain on the QCB is calculated by reference to the market value of the right.