cases involving earn outs this is not likely to have a material impact on the timing of the tax payments.) As the earn out is now in the form of a non-QCB, the paper for paper rules apply and the non-QCB is deemed to be received in exchange for part of the original holding. The present value of the earn out is therefore not taxable at Completion. 8.8 When the earn out right is due, it cannot be paid in cash to the Sellers, as the contract allows only for the issue to them of £270,000 of QCBs in Kettleborough Plastics Limited. The gain is computed at that point: the proceeds are £270,000 and the base cost is £1,200 x 100,000/600,000 = £200. The gain that is heldover is therefore £269,800, and the tax crystallises when the QCBs are redeemed. 8.9 A similar analysis applies if the Sellers decided to take non-QCBs under the provisions of Section 138A. The issue of the non-QCBs is a second occasion when the gain is rolled over. A gain of £269,800 therefore crystallises when the non-QCBs are redeemed. 8.10 The other change that was introduced in respect of the capital gains tax regime as a result of the case of Marren v Ingles was the facility to carry back capital losses on earn out rights. This was introduced as Section 279A-D, TCGA. If the initial perception of the value of the earn out right is greater than the amount eventually received, the loss can be carried back to be offset against the gain on the original disposal. 9.1 Until late 2007 matters were relatively settled in respect of capital gains tax on corporate disposals: for trading companies full business assets taper relief was likely to be available to most shareholders, leading to a rate of capital gains tax of 10%. The main decision point in planning corporate transactions with deferred consideration was the choice between qualifying and nonqualifying corporate bonds. 9.2 The abolition of taper relief and the introduction of entrepreneur’s relief has heralded some changes to the normal loan note structures, notably in smaller transactions. Entrepreneur’s Relief provides a form of taper relief so that the headline capital gains tax rate of 18% can be reduced by 4/9 to 10% for the first £1 million of gains. 9.3 Entrepreneur’s Relief is only available in respect of holdings of 5% or more in trading companies, and provided that the shareholder has been an officer or employee for at least 12 months. There is a lifetime limit of £1 million in respect of this relief. 9.4 If the proceeds received at Completion or in the following 6 months do not cover £1 million of gains for the shareholder, new decisions have to be made by the shareholders as to the choices of loan notes. The loan note of choice in such circumstances is likely to be the QCB: this enables the gain to be computed and for its status as a gain subject to the benefits of Entrepreneur’s Relief to be protected. If the Sellers choose non QCBs, the gain will be rolled over into this new security and this new security will not be eligible for Entrepreneur’s Relief, except in the unlikely event 9Entrepreneur’s Relief
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