Commentary

D6.625 'B' share schemes—structure and implications

Corporate tax
Corporate tax | Commentary

D6.625 'B' share schemes—structure and implications

Corporate tax | Commentary

'B' share schemes

D6.625 'B' share schemes—structure and implications

The scheme detailed below is no longer possible with effect from 6 April 2015. Such schemes offered shareholders a choice between income and capital returns on their shares. From 6 April 2015, legislation removes the choice between taxation as income or taxation as capital; returns where such a choice is offered will be taxed as income where they are received on or after 6 April 20151. See E1.413.

Companies often structure share buy-backs specifically to avoid the distribution treatment (because, for example the company has surplus ACT and wishes to prevent any shadow ACT from arising, or the shareholder has capital losses which he wishes to utilise). This can be done simply by making sure that one or more of the qualifying conditions for distribution treatment (D6.606–D6.607) are not satisfied. However if this is not possible, the use of 'B' share schemes will achieve the same result2.

A 'B' share scheme involves initially the creation of a new class of shares (the 'B' shares) with a nominal value equal to the amount of cash to be returned. The 'B' shares typically have no meaningful equity rights (other

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