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Big earn

21 August 2012
Issue: 4367 / Categories: Comment & Analysis , Capital Gains
A reminder of the rules for capital gains tax and earn-outs, adapted from an article in the Tolley Guidance owner-managed business module


  • Difference in treatment between ascertained and unascertained consideration.
  • The rule in Marren v Ingles.
  • Effect of share-for-share exchanges.

When a business is sold the consideration will often be simply in the form of cash.

However in many cases there may also be some form of deferred consideration which may or may not tie key individuals into continuing to work for the business for a certain period of time.

In such cases the deferred element of the consideration may be quantified at a later date typically using an agreed formula (for example based on two or three years’ post-acquisition profits).

An arrangement such as this is known as an earn-out. The way in which consideration for business sales is structured determines when tax falls due.

Date of disposal

The basic rule...

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