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 an overview 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, it is likely 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 a chargeable gain (ie the capital treatment applies to most corporate shareholders). Therefore, the substantial shareholding exemption can apply on the buyback. See the Substantial shareholding exemption (SSE) ― overview guidance note for further details.

For unquoted trading companies