Ask an expert: Disposal proceeds or interest?

First published in Tax Journal – 02.07.2017

A client company is dealing with a sale of shares and it is expected that the gain on the disposal will qualify for the substantial shareholding exemption. Completion of the contract has been delayed for several months and a considerable amount of ‘interest’ has effectively been added to the basic consideration for the sale of the shares. My client wonders whether this ‘interest’ will be subject to corporation tax under the loan relationship rules, or whether it will form part of the consideration for the sale of the shares

For both capital gains tax and corporation tax purposes, a gain is computed by reference to the excess of the disposal proceeds over the acquisition costs for an asset. In a case where part of the proceeds are described as ‘interest’ the question arises as to how this part of the proceeds should be treated for tax purposes.

On the basis that a debt comes into existence on the completion of a contract for a sale of shares, then any amounts calculated up to the date of completion which are described as ‘interest’ will not be ‘interest of money’ but additional consideration which may qualify for the substantial shareholding exemption. Further details relating to case law can be found within the PDF attachment shown here.

For further information, please get in touch with Jackie Wheaton or your usual Moore Stephens advisor.

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