How is an earnout taxed?

BigFish75

Hi,

I have a small business (Ltd co) which I'm selling to an unrelated 3rd party. The buyer is acquiring 100% of the shares in the business from me for €x now and an additional €y on the 12 month anniversary of sale and €z on the 24 month anniversary of sale both of which are contingent on the business continuing to hit certain agreed performance targets. €y and €z could each be €0 or they could each be a significant amount, it all depends on the continued success of the business.

I don't qualify for retirement reliefs and I understand that CGT will apply to the gain on the share sale but how is CGT assessed on the unquantified future consideration I may or may not receive depending on the performance of the business and when does the CGT on the earnout become payable?

Regards,

Fish

Mr. Incognito

These are known as contingencies.

They are ignored initially for CGT purposes and CGT is due when they are paid.

BigFish75

Thanks Mr. Incognito,

That makes complete sense.

I don't suppose you know where that is confirmed in the tax regulations? I'd like to see it confirmed by the Rec Comm directly.

Fish

tkane

Hi Fish

I dont believe there's any guidance on this from Revenue. It is dealt with by s563 of the TCA but that wont give you any guidance and could in fact be misleading in relation to your case.

Mr Incognito's advice is correct. The two additional sums are effectively treated as separate assets and the tax is payable by reference to the date you receive the each sum.

BigFish75

Cheers TKane, appreciated.