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JOHN MANIS considers how earn-outs should be structured to maximise entrepreneurs’ relief
KEY POINTS
- The problem with TCGA 1992 s 138A.
- Should the vendor give a warranty that targets will be met?
- Using qualifying corporate bonds as consideration.
- Computations should take account of warranties.
After the introduction of entrepreneurs’ relief the question of how it applied to earn-out consideration on a share sale was discussed at length.
However the focus was on what should be done about existing deferred consideration arrangements with less discussion of how earn-outs should be structured in the future.
Many advisers seem to accept that as entrepreneurs’ relief is less widely drawn than taper relief it is now inevitable that earn-out consideration will be taxed more onerously than consideration paid up front.
There is no obvious policy reason why this should be...
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