Deferred consideration – the problem with loan notes

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Looking at a recent query, I thought a quick reminder on this may be useful.

The problem we had was that a company had bought shares in another company with part of the price being in the form of an issue of standard loan notes (in tax tech speak – qualifying corporate bonds (QCBs)). HMRC clearance was obtained such that the gain was deferred until the QCBs were redeemed or disposed of, when the capital gains tax would be due. The business has not done well and is being closed down. None of the QCBs have been redeemed. Can the loan notes be released?

This would not be good. If the loan notes fall in value, no loss relief is available, but any deferred gain still comes into charge on disposal. A disposal includes a release at undervalue.

So, the people holding the QCBs would have a tax bill for receiving loan notes that are worth nothing.

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