The taxation of pay-outs under buy-side warranty and indemnity insurance policies

David Wilson notes in his article (‘Insuring M&A tax risk’ Tax Journal 29 July 2016) that while tax insurance for specific issues in M&A deals has been prevalent for a while a more recent development is for general tax exposure on private M&A deals to be covered with a W&I insurance policy. Indeed in the six months since David’s article the use of W&I insurance has become even more commonplace. Therefore this article considers the issues that need to be considered when examining how the proceeds of a buy-side W&I insurance policy would be taxed in the UK.

Given the number of W&I insurance policies being written (sometimes without gross-ups) the question of how proceeds are treated for tax purposes is likely...