My client is a UK resident individual who owns 3,000 out of 10,000 ordinary £1 shares in an unquoted trading company which he subscribed for upon creation of the company. He has been a working director for the company now for around seven years and wishes to retire. Rather than sell his shares to a third party, the client has agreed to have the company purchase back the entirety for £7 per share. Will the buyback be treated as a distribution, and if so taxed as a dividend under the income tax provisions?

In this situation, the company would firstly need to consider the legal requirements of a valid purchase of own shares and then consider the tax issues involved. This explanation will not cover any legal aspects, but I would recommend reading the Croner-i Direct Tax Reporter guidance on the company law requirements which can found at 762-100.