Marren v Ingles

54 TC 76; [1980] STC 500; [1980] 1 WLR 983; [1980] 3 All ER 95

In this case, the taxpayer sold shares in a private limited company. Part of the sale proceeds were paid immediately, plus a further amount becoming payable if the company subsequently became quoted on the Stock Exchange and the first day trading price exceeded a certain amount. As both of the above conditions were met, the taxpayer received further deferred consideration. HMRC issued capital gains tax assessments, contending that the taxpayer’s right to receive the deferred consideration was an asset within TCGA 1992, s21(1) and that the further consideration derived therefrom constituted a disposal of the asset for CGT purposes. The taxpayer appealed, contending that the deferred consideration was a debt which was exempt under TCGA 1992, s251(1) and also that the payer of the deferred consideration did not acquire an asset and, therefore, there was no disposal for capital gains tax purposes accordingly.

It was held that there had been a disposal for capital gains tax purposes, since the taxpayer’s right to receive the deferred consideration was a “chose in action” (i.e. an asset) and the payment of the further consideration was a capital sum derived from this asset. The payment of the deferred consideration was not a debt within s251(1) since it was an unascertainable amount, dependant on subsequent events. It was held that where there is a disposal of a chargeable asset and there is the possibility of further consideration being received, conditional on future events, the right to receive the future consideration must be valued and brought into account as part of the sale proceeds on the original disposal. The value of that right may then be used as the allowable base cost in calculating the chargeable gain (or allowable loss) on any future consideration received.