This guidance note sets out the tax effect of the ‘capital treatment’ for a relevant shareholder on the purchase of own shares by a company. See the Purchase of own shares ― overview guidance note for a summary of this area.

The tax treatment for the shareholders in a company on a purchase of own shares will fall into one of two categories ― either the ‘income treatment’ or the ‘capital treatment’. For shareholders who are individuals, the income treatment will apply by default to the repurchase. See the Income treatment for purchase of own shares guidance note for details.

For a corporate shareholder, the default treatment is broadly similar with the corporate shareholder treated as receiving an income distribution for corporation tax purposes as well as disposing of its shares for corporation tax on chargeable gains purposes. If this default treatment applies, it is possible that the distribution will fall within one of the dividend exemptions and, as a result, the entire amount received on the buyback is brought into tax as