Can You Pay Capital Gains Tax in Instalments After Selling a Business?

Can you really spread the cost of CGT after selling your business?

We were recently asked a familiar but tricky question: can Capital Gains Tax (CGT) be paid in instalments after the sale of a private company? The client in question had gone through a management buyout, with the sale structured so that part of the consideration would be paid monthly over several years.

At face value, it seems fair to expect that if you're receiving the money gradually, you should be able to pay the tax in the same way. But as with many things in tax, the answer isn’t quite so straightforward.

What the Law Says – and What That Really Means

There is indeed a provision in the legislation, — section 280 of the Taxation of Chargeable Gains Act 1992—that allows for CGT to be paid in instalments if the sale proceeds are received over more than 18 months. In theory, the tax can be spread over a period of up to eight years, with HMRC's permission.

The principle behind this rule is sound: sellers shouldn’t be forced to pay a large tax bill before they’ve received enough of the sale price to cover it. Unfortunately, the practical application of the rule is often much less helpful than it first appears.

HMRC’s guidance explains that if you qualify, you’ll be expected to pay the CGT gradually, roughly in line with when the money comes in. Specifically, they look for tax payments equal to 50% of each instalment received, until the full liability is cleared.

For example, if someone sells an asset for £120,000, to be paid in six yearly instalments of £20,000, and the CGT comes to £35,000, they’d be expected to pay £20,000 of tax once the first £40,000 is received, then further tax as more instalments come in. It all sounds reasonable, until you look at the details.

The Catch: Cash vs. Assets

The real limitation comes down to what form the consideration takes. Section 280 only applies to deferred payments in cash. If the deferred element is in the form of shares, loan notes, debentures or a performance-based earn-out, then the relief doesn’t apply.

This distinction is important. In the real world, most private company sales include some form of non-cash consideration — especially earn-outs, where the final amount depends on future performance. Even though the seller might not see any money for months (or years), the tax is still due upfront, and section 280 offers no relief.

This stems from the decision in Marren v Ingles (1980), where the courts confirmed that the right to receive a future payment is itself considered an asset for CGT purposes. That means HMRC treats it as if you've already received value, even if you haven't received any actual cash. Understandably, that can feel counterintuitive, but it's the reality we have to work with.

In Practice: Rarely the Lifeline You Hoped For

In our experience, the conditions for this relief to be genuinely useful are quite narrow. Usually, there’s an upfront payment involved in the deal, and often the total amount received before the CGT payment deadline is already enough to cover most or all of the tax bill.

Add to that the exclusion of earn-outs and non-cash instruments, and you're left with only a limited number of scenarios where section 280 really helps. More often than not, clients who ask about it end up disappointed when we walk them through the fine print.

What You Can Do

If you do find yourself in one of those rare situations where this relief might apply, you’ll need to apply to HMRC in writing after submitting your self-assessment tax return. There’s no longer a requirement to show financial hardship, but you do need to provide the relevant details about the sale and the payment structure.

The relief doesn’t change how the gain is calculated, — it simply affects when the tax is paid.

Final Thoughts

It’s always a bit frustrating when tax legislation that seems helpful turns out to be so limited in practice. Section 280 is one of those rules that sounds great on paper but often fails to deliver when applied to real-life business sales.

That’s why, when structuring the sale of a company, it’s essential to think not just about the headline price, but also about how and when the payments will be made, and what that means for your tax position.

If you're considering selling your business or are already negotiating terms, we’d be happy to review your plans and advise on the CGT implications. A little planning at the right time can save you a lot of hassle, and cash, down the line.

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