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This guidance note sets out the tax effect of the ‘income treatment’ for a relevant shareholder on the purchase of own shares by a company. See the Purchase of own shares ― overview guidance note for an overview of this area.

The tax treatment for the shareholders in a company on a purchase of own shares will fall into one of two categories ― either the ‘income treatment’ or the ‘capital treatment’.

For shareholders who are UK resident individuals, the income treatment will apply by default to the repurchase. However, where the buyback is carried out by an unquoted trading company and specific conditions are met, the seller is treated as receiving a capital payment instead (ie the capital treatment applies). See the Capital treatment for purchase of own shares guidance note for further details on when the capital treatment can apply.

For shareholders who are not UK resident individuals, only the income treatment can apply as one of the conditions that