Taxes Consolidation Act 1997 section 176

Purchase of unquoted shares by issuing company or its subsidiary

Section 176 provides that when an unquoted trading company (or the unquoted holding company of a trading group) buys back its own shares, the payment to the shareholder can be treated as a capital gains tax disposal rather than a distribution, provided certain conditions are met.

• The buyback must be wholly or mainly for the purpose of benefiting the trade of the company (or its 51% subsidiaries), and must not be part of a scheme to allow the shareholder to participate in profits without receiving a dividend.
• Conditions set out in sections 177 to 181 must also be satisfied, and the shareholder must meet all applicable requirements under those sections.
• An alternative route to CGT treatment exists where the shareholder needs to sell shares back to the company to pay inheritance tax on those shares (or to repay borrowings used to pay that inheritance tax), provided there would be undue hardship otherwise.
• Where a subsidiary company purchases shares in its holding company, the transaction is treated as if the holding company had bought back its own shares, and the same CGT treatment can apply if the conditions are met.