CGT unpaid proceeds claim

If you sell an asset and the buyer fails to pay all or part of the proceeds, and you are unable to recover them, you can claim a reduction for the amount of gain chargeable to tax.

Consideration payable after sale

Where you sell an asset and agree with the buyer that payment can be made by instalments, the capital gains tax (corporation tax for companies) payable is worked out as if all the consideration (proceeds) had been paid at the time the sale was agreed.

As a rule, capital gains are treated as occurring at the time a sale becomes unconditional. Usually this is the date when the parties sign the sale/purchase agreement.

There’s always a risk with deferred payments that the buyer’s personal or financial circumstances might change meaning they are unable to pay and you are unable to recover what is owed despite reasonable efforts.

Where any of the consideration becomes irrecoverable you can claim a reduction in the gain chargeable to tax by that amount.

Example. In 2022/23 John sells his shares in Acom Ltd for £500,000 payable in four equal instalments. John paid £100,000 for the shares and so his capital gain is £400,000  The buyer defaults on the final payment and connot be traced despite all reasonable attempts to find him. John claims an adjustment to the 2022/23 capital gain as allowed by s.48 Taxation of Chargeable Gains Act 1992 (TCGA).

Original proceeds agreed   £500,000

Amount irrecoverable              (£125,000)

Adjusted proceeds   £375,000

Less cost of asset              (£100,000)

Adjusted capital gain   £275,000 

Procedure

A s.48 TCGA claim must be submitted to HMRC within four years following the end of the year in which the payment became irrecoverable.