Revenue Note for Guidance

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Revenue Note for Guidance

132 Matters to be treated or not treated as repayments of share capital

Summary

This section deals with bonus issues of shares followed by the repayment of share capital. Where a company issues share capital as paid up otherwise than for full consideration (that is, as a bonus issue) and afterwards makes a repayment of share capital, the repayment is not to be treated as a repayment of share capital. As the repayment is not treated as a repayment of share capital it is treated as a distribution by virtue of section 130(2)(b).

Details

Definition

(1) “relevant distribution” is the amount of any distribution made in respect of share capital which but for the operation of subsection (2)(a) would be treated as the repayment of share capital.

Repayment of share capital following bonus issue not treated as repayment of share capital

(2)(a) Where a company issues shares otherwise than for full consideration (that is, a bonus issue) and the issue is not treated as a distribution, any share capital repayments made subsequently in respect of those shares are not to be treated as the repayment of share capital unless —

  • the aggregate amount of the repayments made exceeds the amount of the bonus issue, or
  • the bonus issue itself was treated as a distribution at the time of its issue under section 131(2).

As a consequence of not treating the repayment as the repayment of share capital the repayment is treated as a distribution by virtue of section 130(2)(b).

(2)(b) This provision applies where different classes of shares are involved. For example, where there is a bonus issue of ordinary shares to preference shareholders, a repayment of the preference shares is regarded as a repayment of the bonus issue.

Premiums paid on redemption of shares

(3) & (4) A premium paid on the redemption of shares is not treated as a repayment of share capital (and, accordingly, is treated as a distribution by virtue of section 130(2)(b)), unless and to the extent that —

  • the repayment was covered by a premium paid (or otherwise met by new consideration) on the issue of the shares, and
  • the share premium account arising from the issue of the shares had not been used in paying up other shares.

Exception

(5) The rules (subsection (2)(a)) whereby the repayment of shares following a bonus issue is not treated as a repayment of share capital do not apply where —

  • the company is not a close company,
  • the bonus issue is of shares other than redeemable shares, and
  • the repayment takes place more than 10 years after the bonus issue.

Relevant Date: Finance Act 2021