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HMRC internal manual

Capital Gains Manual

HM Revenue & Customs
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Co.purchases own shares: treated as distribution: general


If the consideration for the shares exceeds the amount of capital originally subscribed for them the excess will constitute a distribution unless ICTA88/S219 applies. This does not mean that the purchase is not also a disposal. As far as the shareholder is concerned he or she has disposed of the shares and received a capital payment, part of which is taxable as a distribution.

The disposal proceeds received from the company consist of two elements, a return of the original subscribed capital and the balance which is either Schedule F income (in the case of individuals) or franked investment income less the tax credit (in the case of companies). It will be necessary to make an adjustment to the disposal proceeds in the capital gains computation if any part of the proceeds has been taxed as income. There is an important difference if the purchase was made after 19 April 1989 and the shareholder is a UK resident company. Instructions on this type of purchase can be found at CG58623+.