| Commentary

53.1 General

| Commentary

53 Earn-outs

53.1 General

Earn-outs—where some of the consideration for the purchase of shares in a takeover is deferred and will be linked to the company meeting various performance targets—fall within the employment-related securities regime. Prior to the coming into force of the Taxation of Chargeable Gains Act 1992 Section 138A, the sale proceeds for capital gains tax purposes would include both the ‘up-front’ payment of cash and the value of the earn-out right1. There would be further capital gains arising on the sums received when the earn-out vested.

Under Section 138A, if an earn-out satisfies the strict conditions in the provisions,

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