The following Tax practice note provides comprehensive and up to date legal information covering:
This Practice Note deals with private equity-backed UK management buyouts (MBOs) and examines the employment tax issues arising for a UK management team in respect of the shares they own in the top company of the UK acquisition group (Newco 1). For background information on UK MBOs, see Practice Note: Tax on management buyouts—background.
The managers will want to ensure that they:
receive favourable employment tax treatment on their shares in Newco 1
are not subject to income tax on the operation of a performance ratchet, and
maximise the opportunities for tax relief on their shareholdings
This Practice Note deals with the first point ie favourable tax treatment of the managers’ shares in Newco 1, examining in particular:
the taxation of employment income, including the tax charge on general earnings and the restricted securities regime
methods of mitigating the effects of the tax rules on employment income, such as:
falling within the terms of the 2003 Memorandum of Understanding (MoU) entered into between the British Private Equity and Venture Capital Association (BVCA) and HMRC, and
entering into a section 431 election
For a consideration of the tax issues arising on the operation of a performance ratchet, see Practice Note: Management buyouts—tax on performance ratchets.
For a consideration of the tax reliefs available to the UK management team, see Practice Note: Management buyouts—tax reliefs available to managers.
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