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HMRC internal manual

Capital Gains Manual

HM Revenue & Customs
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Deferred consideration: introduction

This guidance covers the tax treatment of disposals where some or all of the proceeds are not received immediately. This covers all cases where future payments are a possibility. It is not limited to cases where the future payments are certain.

The tax treatment depends on the nature of the future payments. It will be necessary to read the actual contract to confirm the precise details of the future payments. The contract will usually have a section titled Consideration’ which will set out the relevant details.

There are many situations where purchasers do not want to pay the full amount of the consideration at once. They may wish to spread the payments by an instalment plan. Very often the amount which they are willing to pay will depend on future events, for example the future profits of a business or obtaining planning permission for land. The particular circumstances will be specified in the contract.

You may have to consider a number of factors to arrive at the correct treatment of the disposal.

The factors are:

Were the future proceeds ascertainable or unascertainable at the date of disposal? CG14881
Was the asset sold land or an interest in land? CG14870
Were the proceeds linked with an employment contract? CG14871
Were the proceeds income or capital receipts? CG14873
Were the future proceeds to be received in foreign currency? CG15020
If shares or debentures are sold, were the future proceeds to be in the form of shares or debentures? CG15020
Is the transaction otherwise than by way of a bargain made at arm’s length or between connected persons? CG15020
Did the vendor lend the proceeds back to the purchaser? CG15020