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Don’t forget the ‘easy’ rules!

Shared from Tax Insider: Don’t forget the ‘easy’ rules!
By Mark McLaughlin, June 2024

Mark McLaughlin looks at company purchases of own shares and warns not to become too focused on the more difficult rules for capital treatment. 

A company purchase of its own shares from a shareholder is a popular ‘exit’ strategy when an individual shareholder is retiring, or a dissenting shareholder is departing.  

Income vs capital 

When a company buys back its own shares from an individual shareholder, amounts above the capital originally subscribed generally constitute a distribution of income (i.e., like a dividend). However, if certain conditions are satisfied, the vendor is normally treated as receiving a capital payment instead. This can be tax-efficient if capital gains tax (CGT) business asset disposal relief (BADR) is available and the CGT rate is only 10%. 

This ‘capital treatment’ is subject to various conditions (in CTA 2010,

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