The Department of Trade and Industry has issued a consultative document headed 'Share buybacks: company law – Treasury shares'. This contains a discussion of the possibilities for altering company law to enable shares bought back by a company to be held in treasury by it, and not cancelled immediately as is required under current law. The full document can be viewed on the department's website: www.dti.gov.uk and the closing date for submissions is 30 November 2001.
The Department of Trade and Industry has issued a consultative document headed 'Share buybacks: company law – Treasury shares'. This contains a discussion of the possibilities for altering company law to enable shares bought back by a company to be held in treasury by it, and not cancelled immediately as is required under current law. The full document can be viewed on the department's website: www.dti.gov.uk and the closing date for submissions is 30 November 2001.
Annex D to the document summarises the current tax treatment of a repurchase of shares and then sets out proposals for this treatment to be carried through to any new system by which shares bought back are held in treasury. As the document notes, in order to obtain full alignment, it will be necessary to treat any shares bought into treasury as though they were being cancelled, in order to avoid the whole proceeds being treated as an income distribution. The document invites comments on this issue and also on any other practical matters which need to be considered.
Where shares held in treasury are subsequently sold by a company, the document proposes that this should not give rise to any capital gains position. It is also proposed that any such shares should be treated as a new issue by the company for tax purposes so that any appropriate reliefs might be claimed by individual shareholders acquiring treasury shares from a company.
One matter which will need to be addressed, and which is not discussed in the document, is the tax treatment of any capital gains tax losses which arise on a share buyback where the vendor is connected with the company. At present these are considered to be allowable losses on the basis that no asset is acquired by the company, but this argument will not be applicable if the shares are held in treasury.
(Source: Department of Trade and Industry consultative document issued on 18 September 2001.)
