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In David Briggs & Others v HMRC [2019] TC07166 the FTT held that a change in a right to earnout consideration from loan notes to cash was a disposal of that right and triggered the gain deferred on the original disposal.

Under the principle in Marren v Ingles:

The appellants were three individuals who were also trustees of the Briggs Accumulation and Maintenance Trust. They jointly owned, with the trust, 100% of two TV companies which owned the rights to “Who wants to be a Millionaire”. In December 2006 both companies were sold.

The FTT dismissed the appeal disagreeing with the appellants’ analysis’ of the transactions.

There were some errors in HMRC’s closure notices; they referred to the wrong companies and two of the appellants asked that they be declared invalid as a result. The judge refused and found that any reasonable taxpayer would have understood that this was just an error, it had been pointed out to HMRC immediately, and was not so gross and fundamental as to invalidate the notices.

This case is of equal relevance now for a disposal eligible for entrepreneurs’ relief as it was to a claim for business asset taper relief. Had the taxpayers opted out of s138A and paid their tax on the earnout upfront, whilst there would have been a clear cashflow disadvantage, they would have jointly saved £16,364,035!

Links to our guides:

Selling the business: deferred consideration and earn outs

Entrepreneurs' Relief 

Loan stock: QCBs or Non-QCBs (subscriber guide)

How to appeal an HMRC decision

External link:

David Briggs & Others v HMRC [2019] TC07166