Income treatment for purchase of own shares

Produced by Tolley

The following Corporation Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Income treatment for purchase of own shares
  • How does the income treatment apply on a share buyback?
  • Amount of share capital repaid on a share buyback

Income treatment for purchase of own shares

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 UK resident individuals, the income treatment will apply by default to the repurchase. However, where the buyback is carried out by an unquoted trading company and specific conditions are met, the seller is treated as receiving a capital payment instead (ie the capital treatment applies). See the Capital treatment for purchase of own shares guidance note for further details on when the capital treatment can apply.

For shareholders who are not UK resident individuals, only the income treatment can apply as one of the conditions that must be satisfied under the capital treatment is for the shareholder to be UK resident. Though see Simon’s Taxes D6.613 for commentary on the potential infringement on EU freedom of capital that this condition may represent (at least in the case of purchases made prior to 1 January 2021).

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

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