When to declare CGT?

newbiechuck

I have sold some shares in a company at a gain but I am unsure when to report what, in terms of CGT.
Scenario - All shares sold on 04.04.24 for £20k (cost £15k) BUT only received £10k on 04.04.24 as sale agreement was for of 50% up front, 25% in 1 year, 25% in 2 years.
Do I just report all of it on 2023-24 so the gain is covered by the annual CGT exemption, even though I haven't had the funds or, report a £5k loss now to carry forward and then report the 25% as gain in 1 year and again in 2 years?  The only issue with reporting all now is the value may change based on the customer retention in the next 1-2 years (hence delay of share proceeds).

Any advice appreciated.

spider42

Generally speaking, the gain arises on exchange of contracts, and the timing of when you receive the proceeds is irrelevant.

Here, as the future payments are dependent on things which are unknown at the time of sale on 4/4/24, then you have "deferred unascertainable payments". What this means is that you have to value what the right to receive those future payments was worth on 4/4/24, and you then include that as proceeds in the CGT comp in addition to the £10k actually received.

If it is highly likely you will get the full £10k of future payments, then the value will be quite close to £10k. If the targets are very tough, then the value would be lower.

For the sake of argument, let's suppose the right to receive future payments was valued at £8k. You have a capital gain on 4/4/24, based on proceeds of £18k.

When you receive the future payments, then you will have a further capital gain or loss when you receive them, based on whether the amount actually received is more or les than your original estimate. So if you actually received the full £10k, then you have a further gain of £2k in the tax year the payments are received.

If you received nothing, then you have an £8k loss. You can either offset that against capital gains in the same year or carry it forward. You can also make an election to treat the loss as arising in the same tax year as the original gain. So you would effectively revisit the original calculation, and the original chargeable gain would be reduced by £8k.

newbiechuck

spider42 said:

Generally speaking, the gain arises on exchange of contracts, and the timing of when you receive the proceeds is irrelevant.

Here, as the future payments are dependent on things which are unknown at the time of sale on 4/4/24, then you have "deferred unascertainable payments". What this means is that you have to value what the right to receive those future payments was worth on 4/4/24, and you then include that as proceeds in the CGT comp in addition to the £10k actually received.

If it is highly likely you will get the full £10k of future payments, then the value will be quite close to £10k. If the targets are very tough, then the value would be lower.

For the sake of argument, let's suppose the right to receive future payments was valued at £8k. You have a capital gain on 4/4/24, based on proceeds of £18k.

When you receive the future payments, then you will have a further capital gain or loss when you receive them, based on whether the amount actually received is more or les than your original estimate. So if you actually received the full £10k, then you have a further gain of £2k in the tax year the payments are received.

If you received nothing, then you have an £8k loss. You can either offset that against capital gains in the same year or carry it forward. You can also make an election to treat the loss as arising in the same tax year as the original gain. So you would effectively revisit the original calculation, and the original chargeable gain would be reduced by £8k.

Ok, I understand and it makes sense to report it all now as all the shares have been sold now.  Thank you for the advice, I will report the sale estimating I will get the other £10k at some point and adjust later if necessary.

Thanks again