In this week’s Q&A, Croner-i tax advisor Stephen Fletcher, explains the tax treatment for a company purchase of own shares, and the trade benefit and ongoing connection tests
My client and his daughter each own a 50% share of a trading company, from which the father is looking to retire, and we are considering the possibility of a company purchase of own shares.
The company has sizeable cash reserves built up over the years, but not enough to purchase all of the father’s shares in one acquisition, and so the purchase may be staged over multiple years using a multiple completion contract.
How would this impact the qualification for the capital treatment on the father’s disposal?
The ‘normal’ treatment for a company purchase of own shares is the income treatment, meaning the difference between the amount paid by the company and the original subscription price of the shares is treated as an income distribution to the outgoing shareholder.
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