Earn-outs are common in M&A transactions and can be an attractive mechanism for many reasons, including for their potential for incentivising senior management. However, where an earn-out does form part of an acquisition and individual shareholders are staying on as employees post-completion, that can result in unexpected UK tax consequences – for employment tax, capital gains and stamp duty purposes. It is important to involve tax advisers as early as possible in drafting any earn-out to ensure that the respective parties understand what is achievable from a tax perspective.
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Earn-outs are common in M&A transactions and can be an attractive mechanism for many reasons, including for their potential for incentivising senior management. However, where an earn-out does form part of an acquisition and individual shareholders are staying on as employees post-completion, that can result in unexpected UK tax consequences – for employment tax, capital gains and stamp duty purposes. It is important to involve tax advisers as early as possible in drafting any earn-out to ensure that the respective parties understand what is achievable from a tax perspective.
If you are not a subscriber, subscribe now to read this content.
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