How does a company purchase of own shares work?
Answered 17 March 2026
Here is a comprehensive overview of how a company purchase of own shares works, covering both the company law framework and the tax treatment.
What the law says
Company Law Framework (Companies Act 2006)
Power to purchase: A limited company with a share capital may purchase its own shares (including redeemable shares), subject to the provisions of CA 2006 Part 18 and any restriction or prohibition in its articles. However, a company cannot make a purchase if the result would be that no issued shares remain other than redeemable shares or treasury shares.
Payment requirements: A company may not purchase its own shares unless they are fully paid, and the shares must be paid for on purchase (i.e., immediate cash payment). An exception exists for private limited companies purchasing shares for the purposes of an employees' share scheme.
Financing the purchase: A limited company may only purchase its own shares out of:
- distributable profits, or
- the proceeds of a fresh issue of shares made for the purpose of financing the purchase.
A private limited company may also purchase out of capital (in accordance with CA 2006 Chapter 5), or — if authorised by its articles — out of capital up to the lower of £15,000 or 5% of its fully paid share capital in a financial year.
Treatment of purchased shares: Where a purchase is made in accordance with CA 2006 Part 18:
- If the treasury shares provisions (CA 2006 s.724) apply, the shares may be held and dealt with as treasury shares.
- If not, the shares are treated as cancelled and the company's issued share capital is reduced by the nominal value of the shares cancelled.
HMRC guidance / practice
Company Law Background
CA 2006 Part 18 permits companies to purchase and redeem their own shares, a power originating in CA 1981. SI 2003/1116 enabled listed companies to hold shares in treasury from 1 December 2003, and SI 2013/999 extended this to all companies (public and private), allowing them to hold shares and sell them for cash or transfer them for employee share schemes.
SI 2013/999 also:
- Allowed off-market share buy-backs to be authorised by simple ordinary resolution; and
- Allowed approval of multiple off-market purchases for employee share schemes by a single ordinary resolution.
Invalid purchases: Full cash payment is essential. Transferring another asset or creating a loan account does not constitute valid payment — in such cases, the shares are not treated as cancelled and legal ownership remains with the vendor.
Tax Treatment
Default position — distribution: Any excess of the consideration paid over the shares' original subscription price is treated as a distribution under CTA10/S1000(1)B. This applies to:
- Quoted companies (in all cases); and
- Unquoted companies where the conditions of CTA10/S1033 are not satisfied.
The disposal proceeds consist of two elements: a return of capital on the shares, and the balance treated as a distribution (for individuals, subject to Income Tax under ITTOIA05/S383). There can still be a disposal for CGT purposes — the amount chargeable to CGT is the total consideration received, net of any amount subject to Income Tax (per TCGA92/S37). A Stamp Duty liability also arises under FA86/S66 on the return submitted to the Registrar of Companies.
Exempt treatment for unquoted companies (CTA10/S1033): A purchase of own shares will not be treated as a distribution if:
- The company is an unquoted trading company, or the unquoted holding company of a trading group; and
- Either Condition A or Condition B (as set out in CTA10/S1033) is met.
Where CTA10/S1033 applies, the transaction falls outside the scope of distributions and the shareholder is treated as receiving a capital payment (unless the shareholder's trade is buying and selling shares, in which case it is an income receipt).
Reporting obligation: Where a company believes CTA10/S1033 applies, it must make a return to HMRC within 60 days of payment, giving particulars of the payment and explaining why CTA10/S1033 applies — even if HMRC has already confirmed the exemption.
Subsequent bonus issues: Where a purchase of own shares results in a repayment of share capital, a later bonus issue by a close company (at any time) or other company (within 10 years) can give rise to a distribution under CTA10/S1022(3), up to the amount of the repayment — even if CTA10/S1033 clearance was granted.
Citation sources
A company’s purchase of own shares would not be treated as a distribution under CTA10/S1033 if the following requirements are met: the company is an unquoted trading company, or the unquoted holding company of a trading group, and either, Condition A – see CG58630, or Condition B – see CG58645 is met. Once CTA10/S1033 is met, the transaction falls outside the scope of distributions and the shareholder is treated as receiving a capital payment. If the trade of the shareholder was buying and selli
CA06/PART18 permits companies to purchase and redeem their own shares provided certain conditions are satisfied, a power originating in CA81. The rule used to be that, when a company purchased its own shares, the shares were immediately treated as cancelled. The company’s accounts show a reduction in issued share capital matched by credit to a capital redemption reserve. The Companies (Acquisition of Own Shares) (Treasury Shares) Regulations, SI2003/1116 enabled from 1 December 2003 listed compa
If a company undertakes a purchase of its own shares that it believes falls within CTA10/S1033, it must make a return of the transaction to HMRC (CTA10/S1046 (1)). This return must: be made within 60 days of the payment, give particulars of the payment, and explain why the company believes that CTA10/S1033 applies to the payment so as to exempt it from treatment as a distribution. The company must make such a return even if the Commissioners have confirmed that CTA10/S1033 will apply to the paym
A distribution within CTA10/S1000 (1) B is likely to arise when a purchase of own shares is made by: a quoted company, or an unquoted company where the purchase of own shares does not satisfy the conditions of CTA10/S1033 onwards, see CTM17570.
Part 18 Companies Act 2006 allows a company to purchase its own shares if its Articles of Association authorise it to do so. To be valid, the terms of the purchase must provide for immediate payment. There are two parties to the transaction, the company making the purchase and the shareholder whose shares are purchased. For information about how the CT distributions legislation applies to the purchase of own shares see CTM17500+. A private company limited by shares can purchase its own shares by
Part 18 Acquisition by limited company of its own shares Chapter 4 Purchase of own shares General provisions Power of limited company to purchase own shares 690 1 A limited company having a share capital may purchase its own shares (including any redeemable shares), subject to— a the following provisions of this Chapter, and b any restriction or prohibition in the company's articles. 2 A limited company may not purchase its own shares if as a result of the purchase there would no longer be any i
A purchase of own shares by a company is often done as a simpler alternative to more complex share reconstructions or organisations. The tax treatment would depend on how the purchase of own shares was carried out. Any excess of the consideration over the shares’ subscription price would be treated as a distribution under CTA10/S1000(1)B when a company is purchasing its own shares unless the applicable legislation from CTA10/S1033 to S1048 applies. The disposal proceeds received from the compan
Part 18 Acquisition by limited company of its own shares Chapter 4 Purchase of own shares General provisions Payment for purchase of own shares 691 1 A limited company may not purchase its own shares unless they are fully paid. 2 Where a limited company purchases its own shares, the shares must be paid for on purchase. 3 But subsection (2) does not apply in a case where a private limited company is purchasing shares for the purposes of or pursuant to an employees' share scheme.
CTA10/S1022 covers the situation where a company repays share capital and subsequently makes a bonus issue of shares, see CTM15420. In appropriate circumstances the bonus issue is treated as a qualifying distribution. Where a company carries out a purchase of own shares, to which CTA10/S1033 treatment may or may not apply, a repayment of share capital results. If a later bonus issue is made by certain close companies at any time after the purchase of own shares, or by other companies within ten
Part 18 Acquisition by limited company of its own shares Chapter 4 Purchase of own shares Supplementary provisions Treatment of shares purchased 706 Where a limited company makes a purchase of its own shares in accordance with this Chapter, then— a if section 724 (treasury shares) applies, the shares may be held and dealt with in accordance with Chapter 6; b if that section does not apply— i the shares are treated as cancelled, and ii the amount of the company's issued share capital is diminishe