Meeting Points

Earn-outs and loan notes

Julian Ghosh analysed the position where earn-out rights are satisfied by an issue of loan notes in the purchaser company. It is clear that an earn-out within section 138A Taxation of Chargeable Gains Act 1992 is both a security for capital gains tax purposes and also not a qualifying corporate bond. An earn-out right to be satisfied by an issue of loan notes which are not qualifying corporate bonds should therefore on one view if issued by a qualifying company which retains its status at all material times therefore permit a chargeable gain to be tapered down to 10 per cent over the life of the earn-out and the loan notes once issued.

However it remains to be established whether the Revenue accepts that a loan note with features to take it outside the scope of...