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July 8, 2015

Capital Gains Tax & Debt-Forgiveness

Capital gains tax (CGT) is calculated based on sale proceeds received for an asset less the acquisition cost and any other associated costs.

The sale proceeds, i.e. the consideration paid, does not necessarily have to be cash and can instead take the form of ‘money’s worth’. Examples of this include the right to receive income, the value of an asset received in exchange for the asset disposed of, or the benefit to obtain goods or services free or at a discount.

In the recent case of Steven Cooling v HMRC (TC04416), the First-Tier Tribunal found that debt forgiveness constituted non-cash consideration forming part of the disposal proceeds.


  • Mr Cooling sold all his shares in his company to a purchaser
  • Prior to sale, Mr Cooling purchased assets from the company for £297,639. The purchase agreement stated that the purchase price of the assets would be left outstanding as a debt.
  • The share agreement entered into by Mr Cooling and the purchaser stated that the liability of Mr Cooling to the company in relation to the purchase of assets would be assumed and the purchaser will not seek to recover the debt
  • Mr Cooling reported the sale proceeds of the shares only on his self-assessment tax return and did not include the debt

The Case

Waiver of Loan?

Mr Cooling argued that there was evidence to suggest that the loan was paid off rather than waived. The assumption deed provided clear evidence that the purchaser discharged the loan as part of its obligations under the share agreement. When the purchaser entered into the contract, they accepted that the debt was owed to the company and that they assumed liability for it.

In contrast, HMRC claimed that the assumption of liability for the debt constituted a waiver of his loan. HMRC stated that it was clear in the legislation and case law that consideration can include the write-off of a loan between the parties to the transaction. On this basis, Mr Cooling received both cash consideration and non-cash consideration for the shares and the full amount was chargeable to CGT.

Series of Transactions?

HMRC claimed that the transfer of the loan owed by Mr Cooling to the company and the subsequent sale of shares were part of the same series of transactions. They submitted that there was an inextricable link between Mr Cooling’s sale of shares and the waiver of the debt owed by Mr Cooling to the company.

Mr Cooling disagreed with this interpretation and stated that there was only one transaction for the purposes of CGT. The share agreement was a personal transaction between the shareholder and the buyer, and the asset agreement was an unrelated personal arrangement made by him and the company.

The Decision

The First-Tier tribunal agreed with HMRC and held that the debt forgiveness constituted non-cash consideration. The arrangement was contemplated as being ‘part and parcel’ of the share sale transaction.

Therefore, the value of the debt waived was consideration for CGT and Mr Cooling's appeal was dismissed.

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