Company distribution rules and share buybacks
Company distribution rules and share buybacks could soon change. HMRC has been consulting on plans to modernise the tax rules on company distributions. The plans also cover repayments of capital from companies. HMRC published the consultation on 23 June 2026, and it closed on 14 September 2026. Shareholders and their advisers should therefore watch closely for the next steps.
What do the proposals cover?
The consultation looks at several areas, including:
- the treatment of ‘new consideration’ and ‘repayments of capital’
- distributions from non-UK companies
- the interaction between the distributions and loans to participators regimes.
In addition, the proposals include reforms to:
- demergers
- Purchase of Own Shares (POS) relief
- the Transactions in Securities (TIS) rules.
Who could the changes affect?
The consultation focuses on shareholders within the charge to Income Tax. In contrast, HMRC doesn’t intend the proposals to directly affect corporate shareholders. For this reason, individual shareholders should pay close attention to company distribution rules and share buybacks.
How do the current rules work?
At present, a company may carry out a reduction or return of share capital. In that case, HMRC generally treats the amount a shareholder receives as a distribution. However, this only applies to the amount above the capital they originally contributed.
That said, the existing rules leave room for certain arrangements. These usually involve holding companies and share reorganisations. Through them, shareholders can extract value and pay CGT rather than Income Tax.
What is HMRC proposing?
To tackle this, HMRC proposes ‘freezing’ the capital attributed to shares in future holding companies. Specifically, the freeze would fix this capital at the amount originally subscribed for the investment.
Consequently, HMRC could treat more of a share buyback payment as a taxable distribution, rather than a capital receipt. The same could apply to other returns of capital. In other words, shareholders could pay Income Tax on a larger part of the payment.
Even so, the government accepts that the proposal could lead to unfair outcomes in certain circumstances.
What concerns have been raised?
Several parties, including the ICAEW, have raised concerns about the potential impact on companies. In particular, they’ve questioned the proposed changes to reductions of share capital.
What happens next?
Next, HMRC will analyse the consultation responses. It will then decide whether to go ahead. It may also consult further on specific reforms. In the meantime, if you’re planning a buyback or capital reorganisation, review your plans carefully. After all, company distribution rules and share buybacks could look very different in future.
Get in touch
Are you planning a share buyback, demerger or return of capital? Our experienced tax team can explain how the proposed changes could affect you. We can also help you plan ahead with confidence. Contact us today for clear, expert advice.
