Company Share Buybacks: Multiple Completion Contracts

HMRC has recently clarified its position on multiple completion company share buybacks.  

An individual can obtain capital treatment, i.e. lower Capital Gains Tax (CGT) rates of 10%-20%, on a repurchase of their shares by the issuing company, where certain legislative conditions are met. Where the conditions are not met, Income Tax rates apply (dividend tax rates).  

One of the conditions is that the vendor must not be connected with the company after the buy-back. “Connected” for these purposes, broadly refers to a person who possesses or is entitled to acquire more than 30% of: 

• the issued ordinary share capital of the company; 
• the loan capital and issued share capital of the company; or 
• the voting power of the company.   

Multiple completion contracts allow companies to spread the purchase price over multiple tranches. Previously, HMRC would, in the majority of cases, accept that the relinquishing of “beneficial ownership” after the first tranche could satisfy this condition. This meant that as long as, at the time of first completion, the vendor shareholder gave up rights to dividends, votes and assets on winding up, payments could be made on a staged basis, i.e. multiple completions/payment, and obtain capital treatment. 

However, HMRC have now clarified that the 30% condition refers to legal ownership not just beneficial ownership. Therefore, legal ownership that brings the vendor below the 30% connection threshold must now also pass on first completion.  

Effectively, this means that care will need to be taken over the payment made and the legal title that passes on first completion to ensure they are sufficient to meet this condition. 

HMRC have stated that previous Statutory Clearances provided in connection with multiple completion share buybacks will be unaffected.  

AAB have valuable experience in this area and have completed many company share buybacks. If you are contemplating a transaction of this nature and require assistance, or would like further information, please contact Katy Thomson, Corporate Tax Director, or your usual AAB contact.