Substantial share buyback

Substantial share buyback

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Company A owned 18% of Company B. Both companies are UK resident trading companies.

A had subscribed for the shares in B, but 18 months later, company A bought back all of B's shares for cancellation.

According to inland Revenue Statement of Practice 4/89, the distribution is "included in the consideration for the disposal of the shares for the purpose of the charge to corporation tax on chargeable gains".

A few years ago, an exemption from corporation tax was introduced for the disposal of "substantial shareholdings" of other companies (subject to various conditions being met). Substantial is defined as at least 10%.

Can the substantial shareholdings exemption from corporation tax be used in the case of a share buyback?.
Jeffrey A

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By kenmoody
05th Dec 2007 11:16

Don't see why not ...
... though you'd do well to study Sch 7AC TCGA 1992 to confirm that all the conditions are met. You have a CGT disposal and that is all that is required in that respect. SP 4/89 has subsequently been upheld by the courts so describes the correct treatment.

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