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.


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