Can Capital Gains Tax Be Paid in Instalments in the UK?
Can capital gains tax be paid in installments in the UK? It’s a question I hear from clients almost every week, especially those selling a family business, a rental portfolio, or even a valuable piece of land where the buyer wants to spread the payments. After more than two decades helping taxpayers across the country navigate HMRC’s rules, I can tell you the short answer is yes – but only in tightly defined circumstances, and you have to know exactly how to make it work.
The Standard CGT Payment Rules Most People Expect
Most people assume capital gains tax is due in one lump sum alongside their self-assessment return. In the normal run of things that’s true. For the vast majority of disposals you report the gain on your tax return for the year it happens and pay by 31 January following the end of the tax year. If you’ve sold a UK residential property there’s the stricter 60-day rule: you report and pay the tax due within 60 days of completion using HMRC’s real-time service. Miss those deadlines and you’re looking at penalties and interest straight away. But the tax system does recognise that sometimes the cash simply isn’t there yet because the buyer is paying you over time. That’s where the instalment rules come in.
Section 280 TCGA 1992 – The Main Legal Route for Instalments
The main statutory route is section 280 of the Taxation of Chargeable Gains Act 1992. It lets you ask HMRC to let you pay the capital gains tax accountant in the UK in installments when the sale proceeds themselves are payable in installments. The contract has to be clear: the payments must start no earlier than the date of disposal, they must stretch over more than 18 months, and at least some of them must fall after the normal tax payment date. HMRC’s Capital Gains Manual (CG14910) sets this out plainly, and I always point clients to it because the wording matters.
When Instalment Relief Is Most Useful in Practice
In practice this relief is most useful for business sales, commercial property, or share deals where the buyer is funding the purchase from future profits or bank finance paid in stages. I’ve seen it save real cash-flow headaches for clients who sold their manufacturing company with UK operations, or for landlords selling a portfolio to a larger investor who wanted three- or four-year payment terms. It doesn’t apply to unascertainable deferred consideration – things like earn-outs based on future performance – because HMRC treats the right to that future money as a separate asset you’ve already received. But where the amounts are fixed and written into the sale contract, the door is open.
Current CGT Thresholds and Rates for 2025/26 and 2026/27
For the current 2026/27 tax year the numbers you need to keep in mind are these. The annual exempt amount remains £3,000 for individuals. Gains above that are taxed at 18 per cent if they fall within your basic-rate income tax band and 24 per cent on the excess. If you qualify for Business Asset Disposal Relief the rate on the first £1 million of qualifying lifetime gains is 18 per cent from 6 April 2026 onwards. Those rates and the £3,000 allowance have been stable since 2025/26, but the higher BADR rate is a recent change that has caught a few clients out when they were planning exits.
Key CGT Figures at a Glance
Here’s a quick reference table of the key figures that apply right now:
Capital Gains Tax – 2025/26 and 2026/27
- Annual exempt amount (individuals): £3,000
- Basic rate CGT (gains within basic income tax band): 18%
- Higher rate CGT (gains above basic income tax band): 24%
- BADR / Investors’ Relief rate (from 6 April 2026): 18%
- Annual exempt amount (most trusts): £1,500
These thresholds matter because they determine how much tax you’re actually trying to spread. A £200,000 gain after the exempt amount might produce a tax bill of around £42,000 at higher rates, or less if BADR applies. Spreading that over several years can make all the difference to your bank balance.
How the Application Process Works in Real Life
When a client comes to me with a deferred-consideration contract I sit down with the sale agreement and the draft completion accounts. We work out the exact gain first – cost base, incidental costs, any reliefs claimed – then calculate the tax. Only then do we draft the letter to HMRC asking for instalment treatment. The application has to go in after you’ve filed the self-assessment return that reports the disposal, but before the tax falls due. HMRC normally expects the tax instalments to mirror roughly half of each consideration instalment you receive until the bill is cleared. It’s not a rigid 50 per cent rule in every case, but that’s the starting point they publish in their guidance.
A Real Client Example of Instalment Relief in Action
I remember one client last year who sold his engineering firm for £750,000 payable as £300,000 on completion, then £150,000 a year for three years. The gain after reliefs came to £420,000 and the tax at 18 per cent under BADR was just over £75,000. Without instalment relief he would have needed to find that money by the following January while only £300,000 had hit his account. We successfully applied under section 280 and HMRC agreed to spread the tax over the same four-year period. He paid roughly £37,500 with each of the first two instalments and the balance with the final two. Cash-flow stayed manageable and he avoided borrowing at commercial rates.
Important Limitations and the 60-Day Residential Property Rule
The relief isn’t automatic and HMRC can refuse if the contract doesn’t meet the exact wording. That’s why I always insist on seeing the heads of terms before contracts are exchanged. A badly drafted clause can shut the door on instalments and leave you with a full tax bill and no cash. I’ve also seen cases where clients tried to use it for residential property sales caught by the 60-day rule; there the reporting deadline is still tight, but once reported you can sometimes agree a longer payment plan if the consideration is genuinely deferred. The 60-day payment is the starting point, but section 280 can still help stretch the remaining balance.
How Section 280 Instalments Differ from General Time to Pay Arrangements
One thing worth stressing is that this is different from the general “time to pay” arrangements HMRC offers when you simply can’t pay on time. Those are discretionary, usually attract interest, and require full financial disclosure. Section 280 instalments are a statutory right where the conditions are met, and in my experience they’re granted more readily because the legislation supports them. Still, you have to ask – HMRC won’t offer it unprompted.
How HMRC Calculates Instalment Payments in Practice
What many clients don’t realise is how the instalment calculation actually works once HMRC says yes. Let’s walk through a realistic example I dealt with only a few months ago. A self-employed landlord in the North West sold a small industrial unit for £450,000. The buyer paid £150,000 on completion in July 2025 and agreed to three further annual payments of £100,000 each. The gain after deducting the original cost and improvement expenditure came to £280,000. After the £3,000 annual exempt amount the taxable gain was £277,000. At the higher rate of 24 per cent the tax bill worked out at just over £66,500.
Applying Instalments to a Deferred Payment Property Sale
Because the contract met the section 280 tests – payments spread over 42 months and continuing well past the normal 31 January deadline – we applied for installments. HMRC accepted and the tax was split so that roughly half of each consideration instalment went towards the tax until it was cleared. The client paid £50,000 tax with the first £100,000 receipt (the second year), another £16,500 with the third, and cleared the balance with the final payment. No interest ran on the deferred tax because the instalments were agreed up front. That’s the real value: you’re not borrowing from the bank or HMRC at penalty rates; you’re simply aligning the tax with the cash coming in.
Instalment Relief When Selling Shares or a Private Company
Another common situation I see is the sale of shares in a private company where the buyer is another shareholder or a management buy-out team. The same rules apply, but you have to watch the interaction with Business Asset Disposal Relief. The lower 18 per cent rate still applies to the qualifying gain, and the instalment relief can sit on top of it. I’ve had clients who sold their trading company, claimed BADR, and then spread the reduced tax bill over five years because the buyer needed time to refinance. The lifetime limit remains £1 million, so once you’ve used that you’re back to full rates, but the instalment option is still available.
Section 281 TCGA – Instalments for Gifts and Certain Deemed Disposals
There’s a separate instalment route under section 281 for gifts or certain deemed disposals where you don’t actually receive cash. If you give away an asset and hold-over relief isn’t available or only partially covers the gain, you can elect to pay the tax in ten equal annual instalments. The first instalment is due on the normal payment date and the rest on the anniversaries. Interest does run after the first instalment, but it’s still far better than finding the full amount immediately. Trustees and personal representatives sometimes use this when assets pass to beneficiaries. In my experience it’s less common than section 280 but invaluable when it fits – I’ve used it for family farm transfers where the next generation simply couldn’t pay the tax in one go.
Impact of Recent Changes to Business Asset Disposal Relief Rates
Recent changes have made planning even more important. The increase in the BADR rate to 18 per cent from April 2026 means clients who were hoping for the old 10 or 14 per cent rate need to revisit their exit timing. If you’re selling with deferred consideration you can still align the instalments with the new rates, but the overall bill will be higher. I always run the numbers both ways for clients who have flexibility on completion dates.
Practical Steps to Apply for Capital Gains Tax Instalments
Applying for the relief is straightforward but needs to be precise. After you file the self-assessment return that includes the gain you write to the Debt Management and Banking office at HMRC quoting the legislation and enclosing a copy of the sale contract and a schedule showing how the instalments will work. I usually include a simple cash-flow projection so they can see it’s fair. In twenty years I’ve only had one refusal, and that was because the contract allowed the buyer to accelerate payments – HMRC felt it didn’t genuinely extend beyond the due date. We redrafted and it was approved on appeal.
Record-Keeping and Interaction with Other Tax Rules
One practical tip from years of dealing with these cases: keep meticulous records of every payment received and every tax installment paid. HMRC will want to see a running total, and if you ever sell another asset or have other gains in future years you need to be able to show exactly what’s been settled. Also watch the interaction with payments on account. Capital gains tax itself doesn’t create payments on account for the following year, but if the instalments push your total tax liability over £1,000 you could still face them on your other income.
The 60-Day Rule for Residential Property and Instalment Options
Landlords and property investors often ask whether the 60-day residential property reporting rule kills any chance of installments. The honest answer is it complicates things but doesn’t always rule them out. You still have to report and pay whatever tax is due within 60 days based on a reasonable estimate, but if the bulk of the consideration is deferred you can apply to adjust the payment profile for the balance. I’ve negotiated this successfully for several buy-to-let clients whose purchasers were paying in stages after planning permission was granted.
Why Proper Planning Makes All the Difference with CGT Instalments
Ultimately the instalment rules exist because HMRC understands that not every disposal produces immediate cash. Used correctly they prevent genuine hardship and let you complete deals that might otherwise fall through. But they only work if you plan ahead, get the contract wording right, and make the application at the right time. If you’re facing a disposal with deferred consideration, the best step is to speak to your adviser before contracts are signed. A few hours of planning can save you months of cash-flow stress later. The legislation is there to help – you just have to know how to use it.