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Thank you for your answer.
I qualify all of those 4 points you have listed, the company is a consultancy firm. I have one more question related to this:
The prospective buyer wants to have an earn-out period whereby they will pay up-front approx 80% of the purchase price, but the remaining 20% is paid out over a three year period in equal parts, subjected to a formula to decide whether the amount paid goes up or down (from the remaining 20%).
How would these deferred payments be treated and how can I ensure that they are treated equally under the same tax (CGT) rule - because these payments would still be part of the same sale.
By the way the total price for 100% of the share sale is just less than £3M so we are far away from the £10M lifetime limit.
Thank you David
Perhaps I was not clear, sorry.
They are proposing to buy 100% of the shares on day one, however the money will arrive in four parts!
First part : 80% on the day of the signatures of the sale agreement
Second / third / fourth parts total 20% - to be paid over three year period; one year / two years and three years after the date of the first 80%.
It seems to be a standard procedure for our type of company (the buyer keeps some money back to encourage the business to continue to flourish with help of the the original owners working for what is called an "earn-out" period.
So just to clarify, if the sale price is £3M and my share is 31% i would be expected to pay a CGT of 10% on £930,000 - so £93k paid in the tax year that the sale occurs. Do you agree?