Specialist Tax News

Company buy back of shares as an alternative exit

Another potential exit for shareholders would be for the company to buy back their shares. This would normally be taxed on the shareholder as a dividend unless certain conditions are satisfied resulting in the payment being taxed as a capital gain.

Clearly CGT treatment is preferable as the rate could be just 10% compared to up to 38.1% on dividends.

Consequently, HMRC need to be satisfied that the share buy-back benefits the company’s trade, and a large cash payment may be difficult to justify if that depletes cash flow. With careful planning it may be possible to stage the buy back over a number of years, but it is recommended that you get advance clearance from HMRC to confirm capital treatment.