Last updated: 16 October 2026
What is a QCB deferral?
When you sell your company, part of the price is often paid later through loan notes issued by the buyer. If the loan notes are qualifying corporate bonds (QCBs), the gain on that part of the price is worked out at the date of sale and then “frozen”. It is taxed only when the loan notes are redeemed. This is the QCB deferral.
QCB and non-QCB loan notes
| Feature | QCB loan notes | Non-QCB loan notes |
| When gain is taxed | Frozen at sale, taxed on redemption | Gain rolls into the notes, taxed on redemption |
| Business Asset Disposal Relief | Only if you elect to tax the gain at the date of sale | Tested at redemption, when conditions are rarely met |
| If the buyer defaults | Frozen gain is still taxable, with no loss relief | A loss can arise, reducing the gain |
Business Asset Disposal Relief in 2026/27
Business Asset Disposal Relief (BADR) gives a reduced CGT rate on up to £1 million of lifetime gains. The rate was 14% for 2025/26 and is 18% from 6 April 2026. The higher-rate CGT rate is 24%. With QCBs, the frozen gain is taxed at the rates in force when the notes are redeemed, and BADR is lost unless you elect when you sell to have BADR apply to that gain straight away.
Worked example
Anna sells her company for £1.5 million: £900,000 in cash and £600,000 in QCB loan notes redeemable over three years. Her total gain is £1.4 million.
- Option 1: elect for BADR now. The first £1 million is taxed at 18% (£180,000) and the remaining £400,000 at 24% (£96,000). Total tax £276,000, payable on 31 January after the tax year of sale, even though £600,000 has not been received.
- Option 2: defer the QCB gain. Tax is due on the cash gain now and on the frozen gain as each note is redeemed, but without BADR on the deferred part, so up to 24%.
The election saves tax but costs cash flow. Deferral helps cash flow but can cost more tax.
Is the deferral worthwhile?
- Deferral can make sense if you expect to be a basic rate taxpayer when the notes are redeemed, or if spreading redemptions lets you use several annual exempt amounts (£3,000 each).
- Electing for BADR is usually better if the gain falls within your £1 million lifetime limit, the buyer is sound and you can fund the tax.
- The biggest risk is the buyer failing to pay. With QCBs you can still owe tax on money you never receive.
Protecting yourself
Ask for security or a bank guarantee on loan notes, consider whether non-QCB notes suit you better and take advice before signing heads of terms. Earn-outs follow different rules again.
Frequently asked questions
When is the BADR election due?
Within the normal time limit for claiming BADR, which is the first anniversary of 31 January after the tax year of sale.
Can I change QCB notes to non-QCB?
The terms are set in the sale documents, so this must be agreed with the buyer before completion.
Do interest payments on loan notes count as part of the gain?
No. Interest is taxed as savings income.
Does the 18% rate apply to all my gain?
Only up to the £1 million lifetime limit.
Related: BADR on a property sale, tax changes on selling a business and capital gains tax rates.
Talk to Accotax
Want this handled for you? Our team at Accotax can help with selling your company and capital gains tax. See our small business accountants service, or contact us for a free, no-obligation quote.
This page is general guidance based on HMRC rules for the 2026/27 tax year, checked against gov.uk on 16 October 2026. It is not personal advice, so speak to an accountant about your own situation.
