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HMRC internal manual

Company Taxation Manual

HM Revenue & Customs
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Distributions: purchase of own shares: from a dealer

Where a company purchases its own shares from a ‘dealer’, the payment to the dealer will be a trading receipt.

This did not apply to certain preference shares where the dividend was paid before 2 July 1997 (see CTM17650).

There were formerly rules in ICTA88/S95, which was briefly re-enacted following Tax Law Rewrite in similar form as CTA09/S130. However, when the treatment of distributions in the hands of a corporate recipient was recast by FA09/SCH14, which introduced CTA09/PART9A, CTA09/S130 was amended (by FA09/SCH14/PARA20) so as to apply only to long term life insurance business. CTA09/S931W provides the general rule that gives trading income precedence over distribution treatment.


A person is a ‘dealer’ in relation to shares of a company if the price received on their sale by that person otherwise than to the company would be a trading receipt in their hands. This definition covers not just a conventional dealer who holds shares as trading stock. It also covers banks and certain other financial concerns. If such a concern would include a profit on a sale of the shares in its trading profits then it will be a dealer in relation to those shares. This was confirmed in Bibby v Prudential Assurance Ltd / Oakes v Equitable Life Assurance Society (2001) 73TC235. Further guidance on the treatment of distributions received by banks and other financial concerns is available in the Corporate Finance Manual.

Insurance companies

An insurance company could be a dealer for distributions made before 2 July 1997 if it satisfied all the conditions in ICTA88/S95 (1). Insurance companies were excluded from the definition of dealer for distributions made on or after 2 July 1997. The current legislation is at CTA09/S130 as amended by FA09/SCH14. Further guidance on the treatment of distributions received by insurance companies is available in the Life Assurance Manual and in the General Insurance Manual.

Purchase of shares

This includes not only a reference to the redemption or repayment of shares. It also includes the purchase of rights to acquire shares.

It does not include the redemption of certain preference shares before 2 July 1997 (see CTM17650).

Purchase price

This includes a reference to any sum payable on redemption or repayment.

It does not include a sum payable on the redemption of certain preference shares before 2 July 1997 (see CTM17650).