When you sell your business, completion day is not always the end of your involvement. Part of the price may be paid later, you may stay on for a handover, and you will usually give warranties that last for some time after the sale. Capital gains tax is also often due before all of the money has arrived.
Understanding what follows completion helps you negotiate the deal properly and plan for what comes next.
How the price is paid
Few sales of owner-managed businesses are paid entirely in cash on the day. A deal will often include some combination of:
- Initial consideration: the amount paid at completion.
- Deferred consideration: a fixed amount paid at a later date or in instalments.
- Earn-out: further payments that depend on how the business performs after the sale, often measured on profit or turnover over one to three years.
- Retention: part of the price held back, sometimes in an escrow account, to cover any warranty claims.
Deferred and earn-out payments carry risk. If the buyer struggles, you may not be paid in full. Security, such as a guarantee or charge, is worth discussing during negotiations.
When the tax is due
For a sale of shares, capital gains tax is based on the date of the contract, not the date you receive the money. A fixed deferred amount is normally taxed up front, as if you had already received it. Where it is payable over more than 18 months, you can ask HMRC to let you pay the tax in instalments.
Earn-outs are treated differently. Because the amount is unknown, the right to future payments is valued at completion and taxed as part of the original sale. Later payments are compared with that value and can give rise to a further gain or loss. Those later gains do not normally qualify for Business Asset Disposal Relief, so the structure of an earn-out matters. Where an earn-out is paid in shares or loan notes of the buyer, different rules may apply.
A worked example
Suppose you sell your company in June 2026 for £2m: £1.5m at completion and £500,000 fixed deferred consideration payable over the following two years. Your base cost is negligible and you qualify for Business Asset Disposal Relief, with your full £1m lifetime limit available.
- Gain: £2,000,000, less the £3,000 annual exempt amount, gives £1,997,000.
- First £1,000,000 at 18 percent: £180,000.
- Remaining £997,000 at 24 percent: £239,280.
- Total capital gains tax: £419,280.
The sale falls in the 2026/27 tax year, so the tax is due by 31 January 2028, even though £500,000 has not yet been received. The instalment option can help where payments stretch beyond 18 months.
Warranties, covenants and handover
The sale agreement will include warranties about the business and usually a tax indemnity. If something turns out to be wrong, the buyer may be able to claim against you, normally within agreed time and value limits. Good preparation and full disclosure reduce that risk.
You will also usually agree restrictive covenants, such as not competing or approaching customers and staff for a set period. Many buyers ask the seller to stay on for a transition period. Be clear about your role, hours and pay, particularly where an earn-out depends on results you no longer fully control.
Your estate and the cash
Shares in a trading company may qualify for business property relief from inheritance tax. From 6 April 2026, 100 percent relief is capped at £2.5m per person, with 50 percent relief above that. Once you sell, cash in the bank does not qualify for business property relief at all, so the sale proceeds sit fully in your estate at 40 percent.
That makes this a good time to review your will, gifting and pension position. Lifetime gifts become exempt after seven years, so earlier planning gives more time. For investment decisions, take advice from a regulated financial adviser.
Life after exit
Selling a business you have built is a significant change. Think about what you want to do with your time as well as your money, whether that is a new venture, investment, consultancy or stepping back. Any new trading activity will bring its own tax position, and the restrictive covenants you signed may limit what you can do for a while.
What to do
- Agree how deferred and earn-out payments will be secured before you sign.
- Model the capital gains tax and its timing so you hold enough cash to pay it.
- Check how any earn-out will be taxed and whether its structure can be improved.
- Review your will and inheritance tax position once the deal completes.
If you are planning a sale and would like to understand the tax before you commit, book a free call.
