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HMRC internal manual

Capital Gains Manual

HM Revenue & Customs
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Deferred consideration: shares and securities: takeover during earn-out period


You may come across cases where the purchasing company in an earn-out is itself taken over during the earn-out period, and the initial earn-out is replaced by a new earn-out right. Provided the conditions are satisfied by the terms of the later take over (see CG58022) the new earn-out right may also benefit from assumed security treatment. This is on the basis that the initial earn-out right is treated as a security by TCGA92/S138A (3)(a) and that TCGA92/S138A (3)(c) provides for references in TCGA92 to a “debenture” to include reference to such securities, so that TCGA92/S138A (1) can apply when the new earn-out right replaces the initial earn-out right. The legislation is capable of repeated application in a sequence of such take overs.