Back to basics: deferred consideration and capital gains tax

The use of deferred consideration structures in share sales has become increasingly relevant in the current market environment. This can have various commercial advantages for both buyers and sellers for example allowing sellers to achieve a (potentially) higher total consideration for their business while enabling buyers to bridge the valuation gap by offering a lower upfront payment and deferring a portion of the consideration possibly based on future performance of the target business.

There will be various commercial points for both parties to consider in a deferred consideration structure including uncertainty around future performance and availability of funds and such structures can require careful contractual drafting in order to appropriately protect the interests of all involved.

In addition to these points the parties should also consider the tax treatment of the deferred consideration structure. While the terms of the deferred consideration will ultimately come down...