PRIVATE COMPANY BUY-BACKS OF ‘OWN SHARES’

Following the changes made early in 2013 to allow companies to buy back their own shares and hold them in treasury, and as a result of feedback received the Government is considering additional legislative changes to Part 18 of the Companies Act 2006 to further improve the operation of the rules, principally in relation to the buy backs of shares out of capital using the de minimis exemption.

Apart from technical company law difficulties, an additional problem for companies wanting to buy back shares directly, rather than using an employees’ trust, is the tax rule that, other than in the case of an unquoted trading company where the conditions set out in s1033 et seq CTA 2010 (including that the shares have been held for at least five years) are met, any consideration in excess of the amount subscribed will be taxed as dividend income (although there is now an exception in the case of ‘employee shareholder shares’ sold after the employment has ended).