Specialist insurance helps break the deadlock in mergers, acquisitions and business restructuring

Uncertainty is an unwelcome business partner when a merger or acquisition is being negotiated, especially if a tax risk with an unknown outcome has revealed itself.

Certainty can be restored from the protection offered by tax indemnity insurance. Tax indemnity insurance is a specialist product designed to indemnify the insured for any additional tax that becomes due following a business sale or restructure.

Over recent months we have beeninvolved with cases where vendors have anticipated obstacles to sale and have arranged tax indemnity insurance.

Case studies
One was concerned about an employee reward scheme which had granted conditional entitlements to key employees. Due to the nature of the tax issue, the vendor’s advisors were unable to obtain any sort of clearance or reassurance from HMRC.

The options were to place part of the agreed sale proceeds in Escrow or to secure tax indemnity insurance to remove concerns over the inherent tax risk and allow the company sale to go ahead, enabling the vendor to receive the full sale proceeds at the time of the transaction.

In another case, the risk centred on the availability of tax allowances which were unclaimed at the point of sale and which had been identified in the sale documents.

By securing a tax indemnity policy the full £1m of sale proceeds will be received immediately upon the sale being finalised, rather than amounts being released over the next six years until 2023, at which point HMRC’s time limit for discovery assessments will have expired.

Policy length
A tax indemnities policy will normally run for a period agreed between insurers and insured. In direct tax cases this is invariably based around the time limits HMRC has to make discovery assessments.

Multiple scenarios
Tax indemnity insurance can also be the solution where uncertainly surrounds:
  • Eligibility to Entrepreneurs Relief
  • Inheritance tax on a trust
  • Employee Share Schemes
  • Status of workers
For further information and help with tax indemnity insurance, please contact Jeremy Leach on 0345 223 2727 or email j.leach@abbeytax.co.uk
The information provided on this site is of a general tax nature and may not apply to any particular set of facts or under all circumstances. It should not be construed as tax advice and does not constitute an engagement of Abbey Tax. Tax laws are constantly changing. The information on this site was accurate at the time of posting and we make every effort to keep it current, however we are not responsible for outdated material.