The Tax Deed: Who Carries the Risk for Pre-Completion Tax Liabilities

The 30-Second Definition

A Tax Deed, also called a Tax Covenant, is a standalone legal document, separate from the Share Purchase Agreement, in which the seller indemnifies the buyer against tax liabilities that relate to the period before completion but are only discovered, assessed, or crystallise afterwards.

Why It Sits Outside the SPA

Tax claims have characteristics that don't fit neatly into general SPA warranty clauses. HMRC's assessment windows can run for several years after the event in question — longer still where errors are deemed careless or deliberate — so a bespoke claim mechanism and limitation period are needed. 

Tax Deed claims are also typically calculated as a pound-for-pound indemnity equal to the tax liability itself, rather than a measure of the buyer's broader commercial loss, which is how an ordinary warranty claim would be assessed.

What's Typically Covered

Corporation tax, VAT, PAYE and National Insurance, stamp duty, and any tax liability arising from events before completion — including liabilities HMRC hasn't yet assessed at the date the deal completes.

What's Usually Excluded

Liabilities already provided for in the completion accounts, liabilities arising from the buyer's own actions after completion, and anything that has been specifically disclosed and knowingly accepted by the buyer are standard carve-outs from the seller's indemnity.

Why Founders Underestimate It

Sellers often treat the SPA as the only document that really matters in a transaction. In practice, the Tax Deed is what stands between a founder and a personal repayment obligation years after completion, if HMRC opens an enquiry into a period when the founder was still running the business.

How Long the Exposure Lasts

A Tax Deed typically runs for the length of HMRC's standard assessment window, meaning sellers should expect potential exposure for several years after completion — longer than the general warranty survival period set out in the SPA itself.

GRAX Connection

Tax risk doesn't end at completion. The Tax Deed defines how long a founder's Exit proceeds remain genuinely exposed to historic liabilities, and how cleanly that risk transfers across to the buyer on the Acquire side.

This entry is for general information only and does not constitute legal, financial, or tax advice. Founders should take specific professional advice before acting on any of the points covered here.