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HMRC internal manual

Capital Gains Manual

HM Revenue & Customs
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Deferred consideration: not instalments of a capital sum: income or capital receipts

Income receipts

A sale agreement may provide a right to receive a series of income payments, for example royalties, rather than a right to receive a capital sum paid in instalments.

A series of periodic payments can be income if there is no obligation to meet a capital sum. An example of such a case would be where the sale agreement provides for a certain percentage of the sale turnover of a particular product to be paid to the vendor. The consideration for the disposal of the asset would be the capitalised value of the right to the income payments. The treatment of the income payments themselves would be subject to the normal rules of Income Tax, Trading Income or Employment Income.

Capital receipts

The payments will be capital where the sale agreement specifies a CAPITAL SUM. This will be the case even if the actual amount cannot immediately be determined. An example of such capital payments would be where the agreement provides for payment of amounts EQUAL TO a specified proportion of the profits for a given number of years.