Corporation Tax Act 2010 section 1033

Purchase by unquoted trading company of own shares

Section 1033 sets out the conditions under which a payment made by an unquoted trading company when it buys back, redeems or repays its own shares will not be treated as a distribution for corporation tax purposes, but instead falls to be treated as a capital transaction potentially giving rise to a chargeable gain in the hands of the seller.

• A payment by an unquoted trading company (or unquoted holding company of a trading group) on the redemption, repayment or purchase of its own shares is not a distribution if either Condition A or Condition B is satisfied.
• Condition A requires that the buy-back is made wholly or mainly to benefit a trade carried on by the company or its 75% subsidiaries, is not part of a scheme to allow the shareholder to extract profits without a dividend or to avoid tax, and meets the detailed requirements set out in sections 1034 to 1043.
• Condition B applies where substantially all of the payment (ignoring any amount used to pay capital gains tax on the transaction) is used by the recipient within two years of a death to discharge an inheritance tax liability arising on that death — but only to the extent the liability could not have been discharged without undue hardship by other means.
• References in this section and sections 1034 to 1047 to a payment by a company include anything that is, or would but for this section be, a distribution; "the purchase" means the redemption, repayment or purchase in question, and "the seller" means the person who owned the shares at the time of that transaction.