What is share capital and how is it treated for tax?
Answered 17 March 2026
Share Capital: Definition and Tax Treatment
What the law says
Definition of Share Capital and Ordinary Share Capital
"Ordinary share capital" is defined in CTA 2010 s.1119 as "all the company's issued share capital (however described), other than capital the holders of which have a right to a dividend at a fixed rate but have no other right to share in the company's profits". The same definition applies for income tax purposes under ITA 2007 s.989.
In short, ordinary share capital includes all issued share capital except fixed-rate preference shares that carry no further right to share in profits.
Key Tax Rules Affecting Share Capital
1. Repayment of Share Capital — Not a Distribution (Generally)
A straightforward repayment of share capital to shareholders is not treated as a distribution for corporation tax purposes. The distribution rules in Part 23 CTA 2010 are specifically structured to distinguish repayments of capital from income distributions.
2. Bonus Issue Following Repayment of Share Capital — Treated as a Distribution
Where a company:
- (a) repays share capital, and
- (b) at or after the time of repayment issues share capital as paid up otherwise than by receipt of new consideration,
the amount paid up under (b) is treated as a distribution for Corporation Tax Act purposes, except to the extent it exceeds the adjusted amount of the repaid share capital /.
The "adjusted amount" is the total share capital repaid, minus any amounts already treated as distributions under this rule.
3. Exceptions to the Bonus Issue Rule (CTA 2010 s.1023)
The bonus-issue-as-distribution rule does not apply if:
- The issue takes place more than 10 years after the repayment, and the share capital issued is not redeemable; or
- The repaid share capital consisted of fully paid preference shares that were issued as such wholly for new consideration not derived from ordinary shares, and remained fully paid preference shares throughout.
4. Premiums on Redemption
Premiums paid on redemption of share capital are not treated as repayments of share capital for the purposes of the distributions chapter.
5. Share Capital Issued at a Premium
Where share capital is issued at a premium representing new consideration, the amount of the premium is treated as forming part of the share capital for the purpose of determining whether a distribution is a repayment of share capital — but only until that part of the premium has been applied to paying up share capital.
6. Distributions Following a Bonus Issue
Where a company issues bonus share capital (paid up otherwise than by new consideration) and that amount is not itself treated as a distribution, subsequent distributions in respect of those bonus shares are not treated as repayments of share capital — with an exception where the distribution is made more than 10 years after the bonus issue and is not in respect of redeemable share capital /.
7. Relief for Distributions Repaying Earlier Share Capital
Where a person has been taxed on a "CD distribution" (i.e. redeemable share capital or a bonus security issued in respect of shares — falling within paragraph C or D of CTA 2010 s.1000(1)), and a subsequent distribution consists of a repayment of that share capital, the person's income tax liability on the later distribution is reduced by the income tax paid on the earlier CD distribution.
HMRC Guidance / Practice
What is Share Capital?
HMRC confirms there is no statutory definition of a "share". It takes its ordinary meaning as "a definite portion of a company's share capital." A company's share capital consists of the funds subscribed to the company by its members (the shareholders). Shares represent a shareholder's interest in or ownership of the company /.
A shareholder has three principal rights:
- To receive dividends
- To vote at meetings
- To share in the company's assets on a winding-up
The "Corpus" Concept
HMRC's view is that the share capital concept reflects not merely UK company law formalities but members' ownership interests in the "corpus" of the company (citing Rae v Lazard (1963) 41 TC 1). For UK-registered companies, share capital reflects a nominal value, though shares may be issued at a premium. The actual value of shares will usually reflect undistributed profits or the discounted value of the expected dividend stream.
Ordinary Share Capital and Group/Ownership Tests
For the purposes of various corporation tax group and ownership tests (e.g. CTA 2010 s.940A on succession to trades), ownership of ordinary share capital must be beneficial ownership. Ordinary share capital means all issued share capital regardless of how described, but excludes capital whose holders have only a right to a fixed-rate dividend with no other right to share in profits.
Summary Table
| Event | Tax Treatment |
|---|---|
| Issue of new share capital for new consideration | Not a taxable receipt for the company |
| Repayment of share capital to shareholders | Not a distribution (return of capital) |
| Bonus issue after repayment of share capital | Treated as a distribution (up to the repaid amount) |
| Bonus issue 10+ years after repayment (non-redeemable) | Not treated as a distribution |
| Premium on redemption of share capital | Not treated as a repayment of share capital |
| Share capital issued at a premium (new consideration) | Premium treated as part of share capital for distribution purposes |
Citation sources
UK-registered company is what the members contribute and under UK company law reflects a nominal value, although the shares may be issued at a premium. The shares issued will reflect members’ proportionate interests in the share capital according to nominal value (although the actual value of the shares will usually be different from the capital contributed as the actual value will usually reflect undistributed profits or the discounted value of the expected dividend stream rather than entitleme
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