Purchase of own shares Flashcards
Why might a company pruchase its own shares (3)
1) May be the only way shareholder can get the capital they invested in the company back
2) No willing external purchases
3)Keep shares in family but shareholder themselves can’t afford to buy back
How is the POS distributed by default
- By default as an income distribution - money received classed as dividends
Dividends received = Amount received minus original subscription price.
Taxed as dividends
Also CGT comp where sale proceeds = orginal subscirption price.
Assuming the shareholder is the orginal subscriber CGT = 0
Explain the alternative route
Capital distribution - mandatory if conditions are met.
Treated as a capital distribution
Normal capital gains tax computation
Usually elible for BADR
What are the conditions for a capital distribution
- Must be an unquoted trading company
- Must be wholly or mainly for the purpose of benefiting the company trade, POS must not merley be for the purpose of avoiding tax
- The individual must have owned the shares for at least 5 years (reduced to 3 if inheritate ‘look through’
- The company and the shareholder must be UK residents
- The vendors shareholding must be reduced by at least 25% (include associates)
- Must not have owned more than 75% of the shares prior to the POS
- Seller must not be connected to the company after the POS. Connected means an interest of more than 30% (include associates)
Under bridges females urante right on cue
Proforma for question
Explain a share buy back and reasons
Default position
Mandatory position
Conditions
When also is a capital distribution allowed
If all or nearly all of the proceeds used to pay IHT
How must the consideration be received
All in cash
What is a trading company for POS
A company who’s business consists wholly or mainly (greater than 50%) of carrying on a trade
How do we calculate the substantial reductions rest
% Before % after then NMOOO
