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Chapter CTM17510

Document Cited in Related
Vincent
Published date16 April 2016
Record NumberCTM17510
CourtHM Revenue & Customs

CTA10/S1000 (1) B applies the distributions legislation to:

  • any distribution out of the assets of a company (whether in cash or otherwise), in respect of shares in the company,
  • except any part of the distribution that either,

  • represents a repayment of share capital,

  • is in exchange for new consideration received by the company.

Part of a payment by a company to redeem or purchase its own shares should be viewed as a repayment of share capital, and therefore not a distribution. Any new consideration received by the company when the purchase of own shares occurs is also excluded.

It is necessary to establish the amount of the share capital repaid when a company carries out a purchase of its own shares.

In order to do this it is necessary to look at the company’s share history. Particular points to consider are the issue of shares at a premium (see CTM17520) and a previous bonus issue (see CTM17530).

The position is complicated if the shares that are the subject of the purchase of own shares were issued in exchange for shares in another company.

It is necessary to establish the amount of new consideration the company received when issuing the shares that are the subject of the purchase of own shares.

The relevant legislation is in CTA10/S1115. Subsections (4) to (6) restrict new consideration derived from share capital in, or securities of, the same company. Hence, a company can recognise as new consideration the full value of shares in another company that it receives in exchange for the issue of fresh share capital or securities, see CTM15140.

Therefore, when a company receives shares in an acquired company in exchange for an issue of its own shares, the new consideration received by the first company is the market value of the shares in the acquired company.

This may result in the company receiving sufficient new consideration to establish a premium. If so, the premium is treated as part of the share capital when considering the amount of any repayment of share...

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