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HMRC internal manual

Capital Gains Manual

HM Revenue & Customs
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Co.purchases own shares: contrast between repayment/redemption capital


For Capital Gains Tax purposes there is, therefore, a distinction between a purchase of own shares by a company and a repayment or redemption of share capital by a company. In the case of a purchase of own shares the income distribution is included in the sale proceeds only to be excluded from the capital gains computation if TCGA92/S37 applies. In the case of a repayment or redemption any income distribution is never brought into the Capital Gains Tax computation.

This distinction is very important if the shareholder is a UK resident company. If the purchase of own shares is made after 19 April 1989 the payment received from the purchasing company cannot be reduced by the amount of the income distribution for the purposes of computing the chargeable gain on the disposal. However, if the transaction is a redemption or repayment the income distribution will not be included in the disposal proceeds.