Share buy-back - Tax position
I have a client (A) who owned 50% of a private limited company. A and the other 50% owner (B) disagreed on how tthe company should operate and it was decided that the company would buy back the shares held by A. An Off-Market Purchase Agreement was drawn up and the company paid A £70,000 for his one share that originally cost £1. The disposal would normally be treated as a capital gain for tax purposes with entrepreneurs relief available if all conditions were met. Under S.1035 Companies Act 2006 the seler (A) must have held the shares for 5 years. A has only held them for 2 years. My thoughts are that instead of a capital gain the £70.000 payment will be treated for tax purposes as a distribution. A will receive the 10% tax credit and will then be liable at the dividend rate on the gross amount..
I would appreciate any comments concerning the above.