Tax consequences of share buybacks—main rules


Published by a UUÂãÁÄÖ±²¥ Tax expert
Practice notes

Tax consequences of share buybacks—main rules


Published by a UUÂãÁÄÖ±²¥ Tax expert

Practice notes
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A limited company is permitted to buy back Shares that it has in issue, provided certain conditions set out in the Companies Act 2006 (CA 2006) are met. This is known as a share buyback or a ‘purchase of own shares’. In addition to the CA 2006 conditions, there are other Rules and guidelines that apply to listed and AIM companies. In particular, a listed company must have regard to the UK Listing Rules (UKLR) and the Disclosure Guidance and Transparency Rules (DTR), and an AIM company, the AIM Rules. Any such companies may also need to take institutional investor guidelines into account.

Note that the restrictions on buybacks that are contained in CA 2006 do not apply to unlimited companies. Unlimited companies are not discussed further in this subtopic.

What are share buybacks?

Why do a share buyback?

Companies carry out share buybacks for a variety of reasons. One reason might be to return surplus cash to shareholders that does not have a specific purpose and cannot be invested to produce a return greater than the cost

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United Kingdom
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Key definition:
Shares definition
What does Shares mean?

The CA 2006 merely provides that a share is a share in the company's share capital. A company's share capital comprises the number of shares issued by it to investors either on or after incorporation. Those investors then become the shareholders in the company. A shareholder’s shares are their personal property. By contrast, the assets of a company are owned by the company itself. Owning shares does not entitle a shareholder to any property rights in the company's assets.

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