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Purchase of own shares distribution treatment

Share Premium on purchase, is this part of the cost for calculation of distribution

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I have a client where the previous accountants issued the director's shares at a premium of £1.6m. The company used the money to purchase property, some of it has been let by the company other parts have been renovated/converted, and sold.

The previous accounts also converted the share premium into distributable reserves before we took the client on. 

The company now has £700k in the bank and the director was considering selling some of his shareholding back to the company using the distribution treatment.

The problem I have is determining if the full amount the director paid for the shares, including the £16k per share premium, count as the original cost of the shares when calculating the amount of the distribution for Tax, or is it just the £1 per share nominal value. This obviously makes a big difference to the outcome.

Personally, I cant see why it was not originally brought in as a loan to the company, particularly as we inherited the client with a large overdrawn DLA as well!

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By Wilson Philips
16th Jun 2021 17:10

The capital element is the amount subscribed for the shares, including premium.

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