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HMRC internal manual

Capital Gains Manual

Definitions: shares held in treasury

A company’s Articles of Association may permit it to purchase its own shares. Before 1 December 2003 if a company purchased its own shares it was obliged to cancel them. From 1 December 2003 the Companies Act allows a listed company to buy back its own shares and hold them ‘in treasury’ without cancelling them. For this purpose ‘listed’ includes shares dealt in on the Alternative Investment Market (AIM) of the London Stock Exchange. A company that holds its shares in treasury can sell those shares back into the market or cancel them.

Shares held in treasury are still officially issued share capital, the holder being the company. But, because a company cannot have rights against itself, the rights of shares held in treasury are suspended. The company cannot vote in respect of those shares, nor can it receive distributions (including distributions in a winding up) in respect of them. For most tax purposes, FA03/S195(4) provides that any shares in itself that a company purchases are treated as cancelled, whether they are actually cancelled or held in treasury.

FA03/S195(8) provides that a sale of shares out of treasury is to be treated as an issue of new shares.

There are special provisions for the interaction of shares held in treasury with reorganisations of share capital, see CG51750. For details of how the rules on share exchanges (TCGA92/S135) operate when shares are held in treasury, see CG52500 and CG52521-23, and for details of how the rules on company reconstructions (TCGA92/S136 and TCGA92/SCH5AA) operate see CG52700 and CG52707a.