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HMRC internal manual

Capital Gains Manual

Definitions: issue of shares is not a disposal: shares held in treasury

Before 1 December 2003 a company incorporated in the United Kingdom could not own its own shares, for instance before it issued them. Therefore there was no disposal by a company when it issued new shares. From 1 December 2003 it became possible for a listed company incorporated in the United Kingdom to buy back its own shares and hold them in treasury (CG50209). (For this purpose “listed” includes shares dealt in on the Alternative Investment Market (AIM) of the London Stock Exchange.) This brought the United Kingdom regime in line with certain foreign jurisdictions that allow a company to hold its own shares in treasury. Where shares are held in treasury their rights are suspended, and FA03/S195 provides that all repurchased shares are treated for most tax purposes as cancelled, whether they are actually cancelled or held in treasury. The company’s issued share capital is treated as if it had been reduced by the nominal value of the shares held in treasury, and any actual cancellation by the company of shares it holds in treasury is disregarded.

FA03/S195 also provides that where a company disposes of shares that it holds in treasury to another person, this is treated for most tax purposes as an issue of new shares to that person, and is not treated as a disposal of those shares. Persons who acquire the shares from the company are treated as having subscribed for them for an amount equal to the amount or value of any consideration payable for their disposal. FA03/S195 has effect from 1 December 2003. But where a company incorporated outside the UK disposed of shares from treasury before that date, this is also, in practice, treated for the purposes of tax on chargeable gains as an issue of new shares.