The following Tax practice note provides comprehensive and up to date legal information covering:
From a shareholder’s perspective, when a company buys back its own shares, either directly or through an intermediary acting as agent for the company (whether on- or off-market), the purchase normally involves two elements for tax purposes:
a disposal of shares by the shareholder for chargeable gains purposes (with the disposal proceeds being the amount of cash received less any amount chargeable to income or corporation tax), and
an income distribution by the company to the shareholder to the extent the proceeds exceed the amount originally subscribed for the shares
Accordingly, in order to be able to calculate precisely how a shareholder will be taxed on a share buyback, it is necessary to determine how much of the amount paid is treated as a distribution. Note that this calculation is complicated where there have been prior bonus issues of shares by the company (for which, see below).
The taxation of share buybacks more generally is discussed in Practice Note: Tax consequences of share buybacks.
This Practice Note focuses specifically on identifying the income and capital elements of the repurchase amount.
For the special rules which provide wholly capital treatment for certain unquoted trading company buybacks, see Practice Note: Unquoted trading company share buybacks—capital treatment rules.
As discussed in more detail in Practice Note: Scope of distributions for tax purposes, the tax rules recognise eight different categories
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