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Entrepreneurs and earn-outs

06 October 2009 / John Manis
Issue: 4226 / Categories: Comment & Analysis , Capital Gains
JOHN MANIS considers how earn-outs should be structured to maximise entrepreneurs’ relief


  • 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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