Earn-out tax timing calculator

For a cash earn-out of unknown amount, the usual position is that the value of your right to it is taxed at completion, along with the cash you receive then. When the earn-out is paid, the payments are compared with that value. Any excess is a further gain at that point, and a shortfall may give relief.

It adds the value of the earn-out at completion to the cash you receive then, takes off what you paid for your shares, and works out the capital gains tax on that gain at 2026/27 rates. It then taxes any earn-out you expect above that value as a later gain. The headline figure shows the tax due before any earn-out arrives.

It assumes a cash earn-out of uncertain amount that isn't linked to your continued employment. It assumes you haven't used any of your Business Asset Disposal Relief lifetime limit before. The later gain is treated as arising in a later tax year with the same income and its own £3,000 annual exempt amount, and without relief.

It's what the right to the future payments is worth on the day of sale, taking account of how likely the targets are to be met and when the money will arrive. It's usually valued with professional help and is often less than the maximum you could receive. Enter your best estimate, then see how the result changes.

Because the value of the right is taxed at completion, you can owe tax on money you haven't received yet, and may never receive in full. That tax has to come out of the cash paid at completion. The calculator shows the tax at completion as a share of that cash, so you can see the cash flow effect.

Relief can apply to the gain taxed at completion, including the value of the earn-out. Where the earn-out pays more than that value, the extra is a further gain, which usually doesn't qualify for the relief. The calculator taxes that later gain at the normal rates of 18% and 24%, depending on your income.

The calculator flags the shortfall but doesn't work out the relief. Relief may be available where you receive less than the value taxed at completion, but the rules are complex and depend on the facts. If your earn-out looks likely to fall short, take advice on how to claim before relying on any figure.

It can be. If the earn-out depends on you continuing to work in the business, HMRC may tax it as employment income rather than as a capital gain. The calculator assumes the earn-out isn't linked to your employment. Earn-outs paid in shares or loan notes are also taxed differently, so the estimate won't apply to them.

No. The calculator runs in your browser, and the figures you enter aren't stored or sent anywhere. If you accept analytics cookies, we record only that the tool was used, not what you entered. You can use it as often as you like without giving your name or email address.

Check how the earn-out will be valued and taxed, whether any of it could be treated as employment income, and whether the cash at completion covers the tax due. These points are easier to fix before the terms are agreed. To talk it through, book a call or email taxadvisory@aswatax.co.uk, and we'll reply within one working day.