CG58087 - Deferred consideration: shares and securities: retirement relief

The share reorganisation rules in TCGA/Part IV, Chapter II, may result in a taxpayer not being entitled to retirement relief that he could otherwise have obtained from a disposal of shares or securities which he held in a "personal company", as defined in TCGA92/S163 (5). If the taxpayer exchanges shares or debentures for other shares or debentures and the provisions of TCGA92/S135 or TCGA92/S136 apply, there is no disposal of the old shares or debentures, so no gain can accrue against which retirement relief could be set. And the taxpayer may well not meet the conditions for retirement relief if and when he does realise a gain from a subsequent disposal of the shares or debentures that he received in the exchange. To avoid this and obtain retirement relief a taxpayer may make an election under TCGA92/SCH6/PARA2 (1) so that TCGA92/S127 does not apply to the exchange of shares or securities by virtue of TCGA92/S135 or TCGA92/S136, see CG63680+.

One of the conditions for an earn-out right being treated as a security by TCGA92/S138A is that TCGA92/S135 would apply if the earn-out right were an ascertainable amount of shares or debentures of the new company. If a taxpayer has disapplied TCGA92/S127 by making an election under TCGA92/SCH6/PARA2 (1), TCGA92/S135 cannot operate so no election under TCGA92/S138A is possible. But TCGA92/S138A may apply if a taxpayer obtains retirement relief against gains accruing on any cash consideration he receives on a take-over without making an election under TCGA92/SCH6/PARA2 (1) in respect of any shares or securities which he also receives.

(Note: Retirement relief is not available for disposals after 5 April 2003, see CG63861.)