The following Owner-Managed Businesses guidance note by Tolley provides comprehensive and up to date tax information covering:
Payments by companies to repurchase their own shares are subject either to what is referred to as 'income treatment' or to 'capital treatment'.
If the payment is subject to 'income treatment' then some of the amount received is treated as a distribution if the amount the recipient receives exceeds his original capital subscription.
The distribution element, ie the net dividend received, will be the amount received on the share buy back less the original subscription price of those shares. The subscription price is normally the same as the nominal value of the shares.
The capital element is essentially the original subscription price of the shares. Any new consideration received by the company for the shares is also treated as capital.
Consequently, if the shareholder was the original subscriber of the shares, this computation will result in a capital gain of nil. If the individual was not the original subscriber, a capital loss will arise.
**Free trials are only available to individuals based in the UK. We may terminate this trial at any time or decide not to give a trial, for any reason.
Access this article and thousands of others like it free for 7 days with a trial of TolleyGuidance.
Read full article
Already a subscriber? Login