If the consideration includes further proceeds payable upon some future event this is called an earn-out. When further consideration is received, this is a further disposal, being the disposal of the right to receive deferred consideration. This document discusses principles of ascertainable deferred consideration, unascertainable consideration, the Marren V Ingles principle and loss on disposal of right to receive future consideration.

Points discussed within this guidance note:

> Date of disposal – reminder of basic rules

The consideration for disposal for a business will often be simply in the form of cash. However, in many cases there may also be some form of deferred consideration, in which the consideration may be quantified at a later date, typically using an agreed formula - based on two or three years’ post acquisition profits. An arrangement such as this is known as an earn-out. This note details the rules in relation to deferred consideration and the importance of detailing the correct date of disposal.

> Ascertainable deferred consideration

> Earn-outs – unascertainable consideration – Marren v Ingles principle

> Loss on disposal of right to receive future consideration

> Share for share exchanges

> Earn-outs satisfied by loan notes

> CGT instalments

> Employment related securities

Where consideration for a sale is in the form of an earn-out, to be satisfied by shares and / or loan notes, care must be taken to avoid this coming within the employment related securities regime in ITEPA 2003, Chapter 5.

To view the full guidance note register for a free trial or if you already have access to TolleyGuidance please use the 'login' button below:

Request a Free Trial to TolleyGuidance to gain access to the full article

TolleyGuidance is produced by specialists within the field, our tax guidance materials provide actionable insights and practical guidance to support you day-to-day. We don’t just inform you about the latest changes in the tax world. We take the time to explain the implications and, most importantly, what actions you need to take for your clients.

A bit about you:

Please note that all fields marked with a * must be filled in
First name*
Last name*
Job title*