Commentary

D6.436 Management buy-out—vendor tax position

Corporate tax
Corporate tax | Commentary

D6.436 Management buy-out—vendor tax position

Corporate tax | Commentary

D6.436 Management buy-out—vendor tax position

Tax position where the vendor is an individual

Typically, an individual vendor would be likely to want to opt for a 'share' deal, as chargeable gains are subject to a lower overall effective rate of tax.

On an asset sale, the overall effective rate, for a higher rate taxpayer, would generally be higher as there will be taxation within the company to take into account. Ignoring reliefs and allowances, on a dividend extraction the tax rate for a higher rate taxpayer will be 45% (or up to 50% from 1 April 2023 onwards)1. On a liquidation the effective tax rate would be 35% (or up to 40% from 1 April 2023 onwards)2.

This does not mean, however, that an 'assets' deal should be totally discounted. The vendor company may have significant base cost in the individual assets of Target, or there may be capital or trading losses brought forward which could eliminate the tax charge in the company. Moreover, the vendor may be able to reinvest the disposal proceeds and benefit from rollover relief3.

Share deal

As noted above, a 'share' deal may be the preferred structure for individual vendors. The sale of shares would be subject to capital gains tax, liable to tax at a flat rate of 10% or 20% where total taxable income exceeds the income tax basic rate band. These gains may however be covered by capital losses. Business asset disposal relief (formerly entrepreneurs' relief) may also be available with the result that capital

To continue reading
View the latest version of this document, as well as thousands of others like it, sign in to TolleyLibrary or register for a free trial