Close, but not exactly. A deferred payment is just a fancy way of saying “you get paid later.” Section 104 is the official HMRC-approved way to handle the tax on that later payment. Without it, you’d still owe tax on the full profit the day you signed the contract. Ouch.
Imagine you sell a rental property for £500,000, profit of £200,000. Your tax bill might be £50,000. If you only get £50,000 from the buyer in year one, you’d still owe the full £50,000 tax. That leaves you with zero cash. A Section 104 agreement would let you pay just £5,000 in tax that year. The rest gets paid as you receive more installments.
It’s like the tax man saying, “I’ll trust you, but don’t run away to Monaco.” And you reply, “I promise I won’t. Probably.”
When Should You NOT Use It?
Honestly? If you get all the money at once, you don’t need it. Just pay the tax and move on. Also, if you’re selling a property you live in, there’s usually no Capital Gains Tax anyway (thanks, Private Residence Relief). So this is mostly for investment properties or second homes.
And listen: if you’re the buyer in this scenario, this agreement does nothing for you. It’s purely the seller’s concern. You just keep paying your installments and hope the seller doesn’t throw a party with the tax money they saved.
