In response to recent changes to Capital Gains Tax relief, particularly the changes in relief available on qualifying disposals to Employee Ownership Trusts (EOTs) announced in the Autumn Budget, HMRC has provided further clarity on how the new regime will operate.
Following recent discussions between the Employee Ownership Association (EOA), HMRC, and the Department for Business and Trade, HMRC has issued a statement outlining what taxpayers can expect regarding the timing and mechanism for paying CGT under the updated rules.
This step aims to address key practical questions raised by business owners and advisers navigating the transition. The HMRC statement emphasises the availability of instalment arrangements under section 280 of the Taxation of Chargeable Gains Act 1992 for cases where consideration for a disposal is paid over time, a situation common in sales to EOTs. It also explains HMRC’s guidance on how such applications should be made and signals the department’s willingness to engage further on areas where legislative changes may be required.
Below is the statement in full:
“HMRC Statement
HMRC are considering updating formal guidance, and in the meantime have provided this statement. Please note that this statement is not formal advice and may be subject to refinement.
Where consideration received for disposal of an asset is payable to the vendor in instalments, as typically happens on a sale of shares to the trustee of an employee ownership trust, the vendor may apply to HMRC under section 280 TCGA 1992 to pay the tax due on the disposal in instalments. HMRC guidance CG14910 explains that this treatment is available where the consideration instalments begin no earlier than the date of disposal; extend over a period exceeding 18 months; and continue beyond the date on which the tax would otherwise be due.
Each individual disposer must submit their own application to pay tax by instalment, and within the application must set out in writing the proposed schedule of consideration payments due to them as agreed with the purchaser, alongside a copy of the contract. Applications to pay tax by instalment should be made in writing to HMRC’s Capital Gains Tax Queries postal address. We would recommend that the letter heading contains a clear reference to “Section 280 TCGA 1992” to enable swift allocation to the appropriate team.
HMRC will review the application and confirm what corresponding payments of tax are expected, and the statutory due date for each of these payments. The vendor would be expected to pay instalments of tax equal to 50% of each proposed instalment of consideration, until the total tax liability has been discharged. The statutory due date for each instalment of tax is the date from which interest would start to accrue if the relevant payment to HMRC was made late.
If, in the course of events, part of the deferred consideration in fact becomes irrecoverable (for example, if the company has been liquidated), then vendors can apply to HMRC under Section 48 TCGA 1992 to recalculate the consideration for the disposal and recalculate any tax due accordingly. CG14933 sets out the information vendors must include within section 48 claims, which must be made within four years of the date that the consideration becomes irrecoverable.”
Thinking about selling your business to an Employee Ownership Trust?
EOTs remain an attractive succession route, but recent changes mean the timing of tax payments is now a key planning issue, especially where the purchase price is paid over time.
We help business owners understand when CGT becomes payable, how instalments work in practice, and what happens if future payments do not materialise as expected.
If you have any questions regarding the above or about Employee Owner Trusts, speak to our expert below.
