The following Corporation Tax guidance note by Tolley provides comprehensive and up to date tax information covering:
The consideration received by an individual on disposal of their shares in a company will often be simply in the form of cash. However, there may also be some form of deferred consideration, which is often used as an incentive to tie key individuals into continuing to work for the business after the disposal for a certain period of time. In such cases the deferred element of the consideration may be quantified at a later date, typically formula based on two / three years post acquisition profits. An arrangement such as this is known as an 'earn out'.
The way in which the consideration for the sale of shares is structured determines when the capital gains tax falls due. There are special rules allowing the payment of tax in instalments in certain circumstances, which are covered at the end of this guidance note.
It should be noted that most of the commentary in this note relates to the tax position of the individuals involved in a share sale, rather than the companies. It is important that the directors and their advisers understand the tax position of the individuals involved in a transaction as this may impact the way in which the transaction is structured. However, it is recommended that each party involved obtains their own tax advice tailored to their specific circumstances.
The basic rule is that the date of disposal for capital gains tax is the date when there is an unconditional contract for sale. If a contract is conditional on a condition precedent, the date of disposal for CGT purposes is the date that all of the relevant conditions have been fulfilled. A condition precedent is an external condition, eg a contract for sale of land may be conditional on planning permission being granted. A condition subsequent is a condition between
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