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HMRC internal manual

Capital Gains Manual

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HM Revenue & Customs
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Co.purchases own shares: covered by ICTA88 S219

ICTA88/S219

A purchase of own shares will be treated as not giving rise to a distribution

  • if the purchase is made by an unquoted trading company,

and

  • the conditions in ICTA88/S219 - ICTA88/S229 are satisfied.

For further instructions on Section 219 see CT1750+.

In these cases the whole of the sale proceeds are brought into the Capital Gains Tax computation. The application of ICTA88/S219 is mandatory if the relevant conditions are satisfied.

Although Section 219 was introduced as a relieving measure it might not operate to the taxpayer’s advantage.

EXAMPLE

The facts are the same as the example in CG58622 but ICTA88/S219 applies to the purchase of own shares. The capital gain is computed as follows.

      £  
         
  Sale proceeds   700,000  
         
less cost (31.3.82 value)   200,000  
         
    Unindexed gain 500,000  
         
less Indexation   82,800  
    Chargeable gain 417,200  
         
Tax & 40%     = £166,880  

Therefore, Mr Lewis has a higher tax bill, £166,880 compared with £120,000, and no capital loss.