»Ê¹ÚÌåÓýapp

A company may repay or redeem its share capital. This is not the same procedure as purchasing its own shares. As far as the shareholder is concerned a purchase of own shares represents an actual disposal of those shares to the company. »Ê¹ÚÌåÓýapp sum received from the company is the proceeds of that disposal. By contrast a repayment or redemption of the share capital is a deemed disposal by virtue of TCGA92/S122.

TCGA92/S122 (1) provides `where a person receives or becomes entitled to receive in respect of shares in a company any capital distribution from the company (other than a new holding as defined in section 126) he shall be treated as if he had in consideration of that capital distribution disposed of an interest in the shares�.

A capital distribution is defined in TCGA92/S122 (5)(b) as `any distribution from a company, including a distribution in the course of dissolving or winding up the company, in money or money’s worth except a distribution which in the hands of the recipient constitutes income for the purposes of Income Tax�.

A repayment or redemption of share capital will represent a distribution by the company. »Ê¹ÚÌåÓýapp distribution can only be a capital distribution if it does not constitute income for Income Tax or Corporation Tax purposes. »Ê¹ÚÌåÓýapp distribution will constitute income for Corporation Tax purposes, and usually also for Income Tax purposes, if it is a distribution as defined in CTA10/S1000 and is not within CTA10/S1033.

»Ê¹ÚÌåÓýapprefore, if a company repays or redeems its shares and the payment is treated as an income distribution there is no deemed disposal by the shareholder as the payment cannot be a capital distribution. If any part of the payment is not treated as an income distribution because, for example, it reflects a return of capital on the shares, that may be a capital distribution.