What is a contingent liability?
Answered 17 March 2026
A contingent liability is a legal liability that exists from the date it is created, but where the obligation to make payment depends on the occurrence of an uncertain future event. Here is what the law and HMRC guidance say:
What the law says
For Stamp Duty Land Tax (SDLT) purposes, statute provides a precise definition: consideration is "contingent" if it is to be paid or provided only if some uncertain future event occurs, or if it is to cease to be paid or provided if some uncertain future event occurs.
For Capital Gains Tax (CGT) purposes, TCGA 1992 s.49 identifies three specific types of contingent liability that arise on a disposal:
- On assignment of a lease: any liability remaining with or assumed by the assignor that is contingent on a default by the assignee under the lease terms;
- On disposal of land: any contingent liability in respect of a covenant for quiet enjoyment or other obligation assumed as vendor or lessor;
- On disposal of non-land property: any contingent liability in respect of a warranty or representation made on the disposal.
Under s.49(2), if such a contingent liability subsequently becomes enforceable and is being or has been enforced, an adjustment (by way of discharge or repayment of tax) shall be made on a claim.
HMRC guidance / practice
HMRC explains the concept in practical terms: when a person sells an asset, they may accept a liability to make payments to the purchaser if certain events happen or if an asset is not as described in the contract. A common example is warranties in share sale agreements, where vendors agree to reimburse the purchaser if the company has undisclosed tax liabilities or overvalued stock. The legal liability exists from the date of the agreement, but payment is contingent on the purchaser establishing the seller was in breach of the warranty or commitment.
In the case of Randall v Plumb, it was held that the disposal proceeds should be reduced by the value of the possibility that a payment may be due under the contingent liability. However, for contingent liabilities falling within TCGA92/s.49, no initial allowance is made in the CGT computation — instead, an adjustment is made later only if the liability actually becomes enforceable and is enforced.
In summary: a contingent liability is a legal obligation that arises at the time of a transaction but where the actual requirement to pay depends on an uncertain future event occurring (or not occurring). The tax treatment differs depending on whether the liability falls within the specific statutory provisions of TCGA 1992 s.49 or outside them.
Citation sources
Part 4 Stamp duty land tax Chargeable interests, chargeable transactions and chargeable consideration Contingent, uncertain or unascertained consideration 51 1 Where the whole or part of the chargeable consideration for a transaction is contingent, the amount or value of the consideration shall be determined for the purposes of this Part on the assumption that the outcome of the contingency will be such that the consideration is payable or, as the case may be, does not cease to be payable. 2 Whe
Part II General Provisions relating to computation of gains and acquisitions and disposals of assets Chapter III Computation of gains: General provisions Miscellaneous provisions Contingent liabilities. 49 1 In the first instance no allowance shall be made in the computation of the gain— a in the case of a disposal by way of assigning a lease of land or other property, for any liability remaining with, or assumed by, the person making the disposal by way of assigning the lease which is contingen
TCGA92/S49 deals with these problems as they arise in three specific types of contingent liability. It applies to disposals of land any liability remaining with or assumed by the person who assigns a lease which is contingent on a default in respect of liabilities assumed by the assignee under the terms of the lease any contingent liability of the vendor or lessor of land in respect of any covenant required for quiet enjoyment or other obligation disposals of any property other than land any con