Mark McLaughlin looks at a key requirement for capital treatment on a company purchase of own shares, which can be easily overlooked.
A company purchase of own shares (CPOS) can be a useful ‘exit’ strategy for an individual shareholder (e.g., upon retirement), subject to certain company law requirements being satisfied.
Income vs capital
When a company buys back its own shares from the shareholder, any ‘premium’ (i.e., payment exceeding the capital originally subscribed for the shares) is normally a taxable income distribution (i.e., like a dividend). The income tax rates on distribution income are 8.75%, 33.75% and 39.35% respectively (for 2025/26), depending on whether the individual is a basic, higher or additional-rate taxpayer.
However, if certain conditions are satisfied, the individual vendor is treated as receiving a capital
