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The consideration received by an individual on disposal of their shares in a company will often be simply in the form of cash, payable at the time of the transaction. However, there may also be some form of deferred consideration, which is often used as an incentive to tie key individuals into continuing to work for the business after the disposal for a certain period of time. In such cases the deferred element of the consideration may either be known at the time of the transaction (ascertainable) or it may be quantified at a later date (unascertainable). Unascertainable consideration is typically calculated using a formula based on two / three years post-acquisition profits. An arrangement such as this is known as an ‘earn-out’.

The way in which the consideration for the sale of shares is structured determines when the capital gains tax liability of the individual falls due. There are special rules allowing the payment of tax in instalments in certain circumstances, which are covered at the end of this guidance note.

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