Skip links

Tax Liability Insurance

Institutions & Funds

What's on this page:

Funds have historic amounts of “dry powder” which has created a competitive investment environment where high transaction multiples reduce the returns on investment. Asset managers can use tax insurance to protect value and, therefore, maximise proceeds paid to investors.

Our Team are experts in offering tax insurance solutions to the institutional investment industry both at fund and portfolio investment level, whether this be in the context of private equity, credit, hedge, or real estate. Our clients can expect a premium service that resolves their tax problem, with clear communication (in simple language), proactive problem-solving, a straightforward process, and rapid response times.

We can provide a quote for insurance within 48 hours for any jurisdiction and will work with you and your advisers to meet any deadlines. We are supported internationally by a network of top-tier tax counsel who regularly advise on M&A transactions and are familiar with our process, which enables us to provide a premium service no matter the jurisdiction(s) involved.

And afterwards our Claims process is capable of dealing with complex matters as efficiently as possible and supported by robust Risk Capital provided by major insurers.

For more information about Brockwell and our appetite see About Us and Risk Appetite.

If you are a private equity sponsor you may also find our M&A section helpful.

Get a quote here.

How can tax liability insurance help me?

Tax insurance can be used at each stage of a fund’s lifecycle to protect value, create more certainty for investment modelling, and maximise returns to investors.

Fund Raise

Knowledge of how to mitigate risk with insurance can attract investors by offering more comfort about returns, particularly given LPs are often concerned about tax impact.

Investment

Tax insurance can be used to facilitate M&A and protect the investment model from identified risks. See this page for further details.

Holding Period

We can offer protection for repatriation of cash to the fund (e.g. withholding tax), post-acquisition tax risks in a portfolio investment (including cover going forwards), or for risks relating to changes at investor level (this can be particularly helpful in respect of secondary liabilities).

Disposal

Returns can be protected by suggesting insurance as an alternative to an indemnity or escrow (and so avoiding committed capital) or a price adjustment.

Wind-Up

To allow the return of proceeds to investors any outstanding contractual or structural risks can be covered. (e.g. where an unregulated fund’s historic activity may have forfeited its special tax status).

We also regularly provide comfort to investment managers (e.g. regarding the capital treatment of carried interest or co-investments) and sponsored management teams. See Personal Tax for more information.

FAQs

From a structural perspective, tax insurance can be a useful tool to mitigate any risk that investors will be worse off from a tax standpoint than if they had invested directly. This can allow proceeds to be returned to investors when investments are disposed of, the fund is wound-up, or otherwise.

At investment level, tax insurance can be used to protect modelled returns to the fund. For PE and RE funds this can apply to both operational activity by giving certainty of tax treatment – e.g. What is the VAT treatment of a certain supply? – and M&A by preventing “committed capital” relating to an escrow, specific indemnity, etc or to otherwise deal with identified due diligence matters. Whereas a credit fund may require that a borrower considers insurance for tax matters (e.g. identified in due diligence) in order to get comfortable during their underwriting process.

Yes. We can put insurance in place in a very short period of time (see details below). In order for us to consider terms, please provide the information set-out below. Where a ruling has been considered, it is very helpful if your adviser can provide the detail that they would have provided to the tax authority (given we are fulfilling the role of the tax authority in this instance) together with any advice in respect of the risk.

In terms of repatriation, we are regularly asked to consider insuring against withholding taxes or whether interest deductions will be denied such that they cannot be matched against income. For example, where debt is recharacterized as equity or under transfer pricing rules. Concern may arise due to developments since a structure was established which increase the risk of tax leakage. For example, the ECJ’s Danish Cases have caused several fund managers to consider the substance of their holding structures.

Alternatively, the fund may need to act in a way that was not anticipated at the time the structure was established and that may carry an element of tax risk. For example, an unregulated fund may prejudice its special tax exempt status if it is trading – does accepting an unsolicited offer to acquire its assets shortly after its own acquisition of these constitute trading activity?

Secondaries transactions can cause potential tax headaches. For example, a new investor can give rise to secondary liabilities for existing investors in some jurisdictions, like transfer taxes if the fund is deemed to be a real estate rich entity. Insurance can be used to protect other investors in a scenario where it is unclear whether the rules apply and the incoming investor takes the view that it will not pay the taxes thus creating a potential secondary tax liability.

Obtaining a quote costs nothing and is very quick. Please visit Quotes.

You can also get a quote for tax insurance by contacting your insurance broker and providing our contact details. We can recommend a specialist tax insurance broker if you don’t have one.

We typically provide indicative terms of insurance within 48 hours from receipt of the request for terms, but we can provide a quote within 24 hours in exceptional circumstances.

Please see Process for more information.

When seeking a quote for tax insurance the following information should be provided: (i) an outline/description of the tax risk, (ii) details and analysis of any facts relevant to the risk (both positive and negative), (iii) a calculation of the financial cover required, (iv) details of what insurance is required (e.g. who is the insured, policy period, limit of liability, etc), and (v) copies of any tax advice in relation to the risk.

No, but a note from a third party tax adviser (even by-email) will significantly improve the pricing and certainty of a quote. We will have a better understanding and so can price the risk more accurately and will need to assume less about the factual background. An external note also ensures that anything potentially problematic is highlighted (e.g. an ongoing audit or unhelpful factual aspect). If we make a material finding during underwriting then we may need to change our terms.

Once appointed to underwrite, we can issue a finalised policy within five business days although on average it takes two weeks. In exceptional circumstances and depending on the nature of the risk it may be possible to truncate this process.

Please see Process for more information.

The cost of tax insurance will typically comprise the premium, applicable premium taxes, an underwriting fee, and broker commission.

A single, up-front premium is payable. Our minimum premium is typically £85,000 (or equivalent) and we typically charge between 2% and 8% of the limit of liability sought. The applicable insurance premium tax will depend on the location of the policyholder. However, we consider each transaction on its own merits and exceptionally we can offer a lower premium.

Our external expenses vary according to the complexity/size of the risk and the scope of work required. Typically, our external expenses are £10,000 – £30,000 (or equivalent).

The structure of your insurance broker’s commission will depend on the agreement they have with you. Typically, brokerage is a percentage of the premium (and we will provide a gross premium quote, i.e. inclusive of brokerage), but some brokers work to a fixed fee with their clients.

Need an answer now?

Contact The Team get a quote