Readers’ forum: When is a guarantee not a guarantee?

My client owns a substantial investment company which has a mixed portfolio of property and financial investments.

He is in the process of selling 100% of shares in the company and will realise a substantial capital gain. He accepts that BADR will not be available. The vendor has offered to structure the purchase with an upfront payment of 50% of the total value and the balance in loan notes redeemable in tranches over five years.

My client is minded to accept this structure as it would allow him to spread the gain over a number of tax years but is obviously concerned about the risk of the purchaser failing to honour the loan notes and he has sought some form of guarantee from the purchaser.

The purchaser has agreed to this and a bank guarantee has been arranged. It turns out that the guarantee will be backed by the...