Company Buyback of Own Shares: A Guide to Share Repurchase

(1 out of 5: Share Buyback Series)

This article is part of our Share Buyback Series, covering key aspects of company buybacks, tax implications, and reporting obligations.

A Company Buyback of Own Shares allows businesses to repurchase their issued share capital under the Companies Act 2006, provided certain legal conditions are met. This process, also called a share buyback, is a strategic financial tool that helps companies restructure ownership, provide shareholder exits, and optimise capital allocation.

For shareholders in private limited companies, a buyback can be one of the few ways to recoup their initial investment, particularly when there is no secondary market for shares. However, the tax treatment of a share disposal depends on whether it is classified as income (dividend taxation) or capital gains. Under certain conditions, unquoted trading companies may qualify for a capital gains tax (CGT) treatment, rather than dividend taxation.

For those looking for certainty on tax treatment, HMRC offers an advance clearance procedure that determines whether the transaction qualifies for capital gains treatment.

👉 Related Read: Understanding Company Buyback of Own Shares

Table of Contents

• Why Do Companies Buy Back Their Own Shares?

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    • 1. Providing an Exit Route for Shareholders

    • 2. Retaining Ownership Within the Family

    • 3. Restructuring Share Capital

Why Do Companies Buy Back Their Own Shares?

Companies initiate share buybacks for a variety of reasons, including tax-efficient shareholder exits, ownership restructuring, and maintaining control within a family business. The main drivers of buybacks include:

1. Providing an Exit Route for Shareholders

A share buyback offers an effective means for a company to facilitate an exit for its shareholders, especially in cases where:

• A shareholder is retiring, and there are no external buyers for their shares.

• A dissenting shareholder wants to exit due to a dispute over business direction.

2. Retaining Ownership Within the Family

For family-owned businesses, a buyback ensures that control remains within the family. Instead of an external sale, the company can repurchase the shares and keep ownership among family members.

3. Restructuring Share Capital

Companies often use buybacks to reorganize their share structure, such as:

• Eliminating a specific class of shares.

• Reducing share dilution to improve financial metrics, such as Earnings Per Share (EPS).

• Enhancing investor confidence by demonstrating financial stability.

There are many routes and angles that can be discussed and this was simply the first of many planned posts. In the near future, we shall cover the income and capital treatment in more detail as well as everything that needs to be considered before and after a buyback, along with reporting obligations and duties.

Stay (blog) posted for part 2: Key Considerations Before a Company Buyback of Own Shares 

Meet Omar Omar is a Chartered Tax Advisor (a.k.a an expert on tax issues) and founder of ASWATAX. He regularly shares his knowledge and best advice here in his blog and on other channels such as LinkedIn. Book a call today to learn more about what Omar and ASWATAX can do for you.

*Disclaimer: ASWATAX is a firm of Chartered Tax Advisors, and we strive to provide accurate, up-to-date tax insights. Tax laws may change, so this content is for general guidance only and not a substitute for professional advice. Seek independent tax and legal counsel before making decisions. ASWATAX is not liable for any loss from reliance on this information. Use at your own risk.