A Family Management Buy-Out (FAMBO) offers business owners a structured way to release capital value while keeping their company within the family or management team. This approach can be especially attractive where the owner wishes to step back but retain an interest in the business rather than exit entirely.  

Importantly, a FAMBO does not require a full sale - many vendors retain a minority stake (up to c.25%) preserving an involvement in the business while transferring majority control to their successors. 

What is a FAMBO?

A FAMBO involves the family or management team establishing a new company (newco) to acquire the shares of the existing trading company or group. It combines succession planning, commercial continuity and potential tax efficiency. 

How the structure works 

Creation of newco 

Family members and/or management set up newco as the acquisition vehicle.

Funding the purchase

The newco typically raises funds through bank lending, loan notes issued to the seller, and/or deferred consideration funded from future profits of the trading business. A crucial point to note, is that a significant proportion of the consideration can be deferred. Typically we would be looking at a day 1 payment with the rest deferred, potentially over a period of up to 10 years if circumstances permit.  

Acquisition 

Newco purchases the shares at market value. As making this transaction work is underpinned by the valuation of the shares we would always recommend that the share valuation work be obtained from a professional valuer.  

Tax position for the selling shareholder

Capital Gains Tax (CGT) 

A disposal at market value occurs on completion. If qualifying conditions are met, Business Asset Disposal Relief (BADR) should reduce the CGT rate on the first £1m of gains. 

BADR rates: 14% for disposals before 5 April 2026; 18% for disposals after that date. 

Loan notes vs deferred cash 

Depending on the form of loan notes used, the CGT position can be crystallised at completion, allowing BADR to apply. Alternatively a different form of loan notes could be used that only crystallises tax on redemption at the applicable CGT rate at that time. Using “deferred cash” as the consideration method will typically mean that the capital gain is treated as arising at completion, with the CGT payable by 31 January following the end of the tax year in which completion occurs.

There are other ways to structure FAMBOs, for example by issuing preference shares or potentially with the use of Trust structures, and the optimal structure will be assessed depending on discussions with the shareholders. 

Inheritance Tax (IHT) considerations 

If the seller’s shares previously qualified for Business Property Relief (BPR), exchanging them for cash or loan notes typically results in the loss of BPR, potentially increasing long-term IHT exposure for the sellers. When structuring FAMBOs we consider alternative structuring that could potentially mitigate this IHT exposure, for example with the use of Family Investment Companies. We can, of course, introduce our wealth management specialists as required. 

Tax considerations for buyers 

Buyers usually subscribe for shares in newco. No income tax arises on the buyers unless shares are acquired below market value. HMRC may, of course, scrutinise whether employee/director buyers receive value linked to employment.  

It is important that the buyers are comfortable that the debt their newco is taking on is sustainable in light of the business’s expected trading position. Nevertheless, acquisition financing can offer an advantage in that interest payments may be deductible for tax purposes. 

HMRC clearance and practical points 

HMRC may review the valuation used for the transaction, along with the commercial rationale and whether there are any tax avoidance steps associated with the transaction. To mitigate risk of future challenge we would always recommend a Transactions in Securities (TiS) clearance. Depending on what, if any equity percentage the departing shareholders wish to retain, a capital gains tax clearance may also be appropriate.  

Note, Stamp Duty of 0.5% of the market value is always likely to apply on newco’s acquisition so this should effectively be factored in as a transaction cost. 

Is a FAMBO right for you? 

A FAMBO can provide smooth succession, partial exit with retained equity, potential tax efficiencies, and continuity for family or management. However, the structure needs careful planning, particularly around BADR, IHT and funding. 

Get in touch 

Advisory support is available for companies considering succession planning, particularly where existing shareholders (for example, parents) are planning to step aside and transfer the business to the next generation.  Where shareholders wish to explore the possibility of securing BADR at 14%, there is merit in beginning discussions soon, as the window to submit tax clearance requests to HMRC and obtain confirmation ahead of 5 April 2026 is narrowing

If you would like to discuss any of the points in this article, please feel free to get in touch with me, or your usual Johnston Carmichael contact.