Management buyouts—summary of tax issues for management
Management buyouts—summary of tax issues for management

The following Tax guidance note provides comprehensive and up to date legal information covering:

  • Management buyouts—summary of tax issues for management
  • What is a management buyout?
  • How do the management team participate in the management buyout?
  • What are the key tax concerns for the management team?
  • Tax treatment of the managers' shares in Newco 1
  • Tax treatment of performance ratchets
  • Available tax reliefs

A management buyout, or MBO, involves the acquisition of a business by its existing management team usually with the help of private equity financing. This Practice Note provides an brief summary of the key tax concerns relevant to a UK management team, together with links to Practice Notes examining the tax issues in more detail.

For details of the tax issues relevant to the UK acquisition group in an MBO, see Practice Note: Buyouts—tax issues for the acquisition group.

What is a management buyout?

An MBO is where the existing management team (or some members of the team) acquire a stake in the business that they manage, usually with the help of private equity financing. The private equity firm also receives a stake in the business and the incumbent management remain in place post-acquisition.

The structure of an MBO will depend on the requirements of the transaction but it will usually involve setting up an acquisition group to buy the target business or company (Target), with the acquisition being funded through a combination of debt and equity.

A simplified structure is illustrated below:

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For more information on MBOs, including structure, financing and the transaction process, see Practice Note: Tax and management buyouts—background.

How do the management team participate in the management buyout?

The success of an MBO will usually