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Purchase of own shares: securing capital treatment

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A company can purchase its own shares, but the basic principle is that any amount paid in excess of the capital subscribed for the shares is taxed as a distribution. However, where a number of conditions are satisfied, capital gains tax treatment can be obtained for the shareholder. Principally, the company must be an unquoted trading company, and the purchase must be for the benefit of a trade carried on by the company. Furthermore, there are a number of requirements that must be met. For example there must be a substantial reduction in the shares owned by the vendor shareholder, who must not be connected with the company after the share purchase.

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