Sam Hart looks at how different amounts of consideration on a business sale received at different times are treated for tax purposes.
When a business is sold, price is rarely the only factor that matters, although vendors often have a magic number in mind. Getting to that number may sometimes prove difficult, as timing, structure and uncertainties all play a part in how ‘fair’ the deal feels to both sides.
From a tax perspective, one of the most important distinctions is whether all proceeds are received immediately or whether part of the consideration will be paid later or depend on future performance. Those conditional elements, often described as deferred consideration or ‘earn-outs’, can have a major impact on the capital gains tax (CGT) position for the vendors.
