When you sell a business, the headline price is often not what lands in your bank account on completion day. Part of it may come later, and part may depend on how the business does after you've handed it over. Sometimes you lend the buyer some of the price yourself.
Two offers with the same headline can be worth very different amounts to you. This guide explains how money paid later works in a UK business sale, and what to watch for as the seller.
Why buyers pay part of the price later
- They don't have all the money on the day, and their bank won't lend all of it.
- You and the buyer see the business's prospects differently, and paying more if it does well bridges the gap.
- They want you involved during the handover, with a reason to stay.
- They want something to fall back on if a problem turns up after the sale.
None of these is unreasonable. Each one moves risk from the buyer to you, though, and you should get something for taking it, such as a higher price or interest on what you're owed.
Deferred consideration, a fixed sum paid later
Deferred consideration is the general term for any part of the price paid after completion. The simplest kind is a fixed amount on fixed dates, such as a quarter of the price a year after completion.
The risk is that the buyer can't or won't pay. If the business struggles under them, or you fall out, the money you're owed may arrive late, or be reduced by claims they say they have against you. The sale agreement should say what happens if a payment is missed, and whether the buyer can hold back a payment because of a claim.
Retentions and escrow
A buyer may want to hold back part of the price for a while, in case a warranty claim comes up or a risk found in due diligence turns into a cost. Sometimes it's held until the final accounts are agreed. If so, ask for it to be held in an escrow account, usually with one of the solicitors, rather than by the buyer. It's then paid out on terms agreed in advance, not at the buyer's discretion.
Earn-outs, where the price depends on future results
An earn-out ties part of the price to how the business performs after the sale, usually measured by revenue or profit over an agreed period. If the business hits the targets, you're paid more. If it doesn't, you're paid less, or nothing.
Earn-outs can bridge a real gap between what you think the business is worth and what a buyer will pay up front. They're also a common source of disputes, because once you've sold, the buyer controls the business that's meant to earn your money. These are the points to agree in writing.
- The measure. Revenue is harder for a buyer to influence than profit. If the measure is profit, define every cost that counts, including any charges from the buyer's other businesses.
- The accounting. The same accounting policies as before the sale, so a target isn't missed because of a change in method.
- How the business is run. Things the buyer can't do without your agreement during the earn-out, such as merging the business into another one or moving its customers.
- Information. Regular figures, so you can see how you're doing against the targets.
- Disputes. An independent accountant to settle any disagreement about the figures.
- Early payment. The full amount paid early if the buyer sells the business or dismisses you without good reason.
- A sliding scale. Payments that rise with performance, rather than a single target where missing it by a pound costs you everything.
Vendor finance, when you lend the buyer part of the price
Vendor finance means you lend the buyer part of the price and they pay you back over time, usually with interest, out of the business's profits. It's sometimes called seller financing, or a vendor loan note. It's common in a management buyout and in a sale to an employee ownership trust, where the buyer has no other way to raise the full price.
You're relying on the business to do well enough under its new owners to pay you. If a bank is also lending to the buyer, it will usually insist on being repaid first, so you're the one who waits if money gets tight. Ask for protection that matches the risk.
- Interest at a rate that reflects the risk you're taking.
- Security, such as a charge over the business's assets or over the shares you've sold.
- A guarantee from the people or the company behind the buyer.
- Limits on what the buyer can take out of the business, such as dividends, until you're paid.
- The right to demand everything at once if a payment is missed.
How vendor finance is written up matters for tax. If the buyer owes you part of the price under the sale agreement, it's deferred consideration. If the buyer pays the full price and you lend some of it back, HMRC treats that as a completed sale plus a separate loan. You then can't pay the tax in instalments, and if the buyer later fails to repay, your gain on the sale isn't usually reduced.
How money paid later is taxed
This is general, and the rules have more detail than there's room for here. Ask your accountant to work out the tax under each offer before you agree heads of terms.
A fixed sum paid later
If part of the price is a fixed amount paid later, the full amount usually counts towards your gain at the time of the sale, with no discount for waiting. So you can owe tax on money you haven't received. If the price is paid in instalments over more than 18 months, you can ask HMRC to let you pay the tax in instalments too, over up to eight years. If some of the money is never paid, you can claim to have your gain adjusted.
An earn-out
Because nobody knows what an earn-out will pay, the value of your right to the future payments is estimated and added to the price at the time of the sale. Paying the tax in instalments isn't available for this part. Business Asset Disposal Relief can apply to that value. When the payments arrive, any difference from the estimate is a separate gain or loss on the right itself, and a gain there doesn't qualify for the relief. Different rules can apply if the earn-out is paid in shares or loan notes of the buyer.
Earn-outs and your pay
If you're staying on, take care with how an earn-out is linked to your job. Where part of an earn-out is really a reward for your future work, HMRC treats that part as employment income, taxed as pay with National Insurance, rather than as part of the price for your shares.
HMRC's guidance looks at whether the earn-out depends on you staying beyond a reasonable period to protect the value of the business, and whether it has personal performance targets. It's more likely to be accepted as part of the price if it reflects the value of the shares and isn't making up for a low salary. Sellers who leave getting the same terms as those who stay is another good sign. Your solicitor and accountant should check the drafting against that guidance.
The rates
For 2026 to 2027, Capital Gains Tax is 18% on gains within your basic rate band and 24% above it. Business Asset Disposal Relief taxes qualifying gains at 18%, up to a lifetime limit of £1,000,000. The Budget on 28 October 2026 cut that limit to £500,000 for disposals made on or after 6 April 2027, with special provisions for contracts entered into before that date but not completed by then. These figures were checked after that Budget.
Comparing offers with money paid later
A made-up example shows why the headline isn't enough.
| Made-up example | Offer A | Offer B |
|---|---|---|
| Paid on completion | £1,000,000 | £600,000 |
| Fixed sum a year later | None | £150,000 |
| Earn-out over two years, if targets are met | None | Up to £250,000 |
| Headline price | £1,000,000 | £1,000,000 |
| Certain on the day | £1,000,000 | £600,000 |
Offer B only matches Offer A if the buyer pays the fixed sum and the business hits every earn-out target. If the earn-out pays nothing, you've sold for £750,000, and you'll have been taxed on the £150,000 before it arrived. Offer B could still be the right one, if you trust the buyer and the business and it comes with proper protection. But they aren't the same offer, and only one of them is certain.