CG58610 - Co.purchases own shares: treated as distribution: general

A purchase of own shares by a company is often done as a simpler alternative to more complex share reconstructions or organisations. The tax treatment would depend on how the purchase of own shares was carried out.

Any excess of the consideration over the shares’ subscription price would be treated as a distribution under CTA10/S1000(1)B when a company is purchasing its own shares unless the applicable legislation from CTA10/S1033 to S1048 applies.

The disposal proceeds received from the company consist of two elements, a return of the capital on the shares and the balance which is treated as a distribution (in the case of individuals) and subject to Income Tax under ITTOIA05/S383 or qualifying investment income (in the case of companies).

A distribution received by the individual can be subject to Income Tax. There can still be a disposal for Capital Gains Tax purposes. The amount chargeable to CGT would be the total amount of consideration received for the shares, net of any amount subject to Income Tax as per TCGA92/S37 (see CG11890).

Additionally, a purchase by a company of its own shares attracts a Stamp Duty liability under FA86/S66 on the return it submits to the Registrar of Companies. See STSM075020 for further details.