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HMRC internal manual

Capital Gains Manual

Co.purchases own shares: UK resident company shareholder

Where the shareholder is a UK resident company, the tax consequences depend on whether the company purchasing its shares is also UK resident or not.

If a company shareholder is UK resident, a distribution to it from a UK resident company would not be subject to Corporation Tax on the basis that the payments are exempted by Part 9A of CTA09. As such, TCGA92/S37 does not apply and the disposal proceeds are not reduced by the amount of the distribution. Instead, TCGA92/S122 treats the distribution as a disposal of an interest in the shares giving rise to a chargeable gain. This treatment is explained by Statement of Practice 4/89 which, although written in terms of ICTA88/S208 which has been repealed, is still relevant.

If the company shareholder is non-UK resident, the exemptions in part 9A CTA09 do not apply and so the payment would be taxed as a distribution.