- within Tax topic(s)
- with Finance and Tax Executives
- in European Union
- in European Union
- with readers working within the Accounting & Consultancy industries
HMRC have today published a consultation on a significant modernisation of the UK tax rules for distributions and capital repayments by companies.
Under current law, returns of value from companies to individual UK shareholders can be taxed as income, capital or a mixture of the two, under a complex set of overlapping rules and legal principles.
The scope of the consultation is very wide, covering a number of topics that commonly arise on transactions, including: distributions, repayments of capital, share buybacks, reorganisations, demergers, and loans between companies and their shareholders.
Any changes are intended to affect individual and trust shareholders only; the corporation tax rules will be unchanged.
Shareholders and their businesses will want to take time to understand what is proposed and the wider implications. In very broad terms, the proposals under consideration include:
- aligning the tax treatment of distributions from UK resident and non-UK resident companies, such that a wider category of distributions from the latter will be subject to income tax than is currently the case;
- reducing the scope for returns of capital to be taxed as capital rather than income;
- preventing companies from implementing tax-neutral demergers using a reduction of capital, instead requiring that new statutory conditions are met before demerger relief is available;
- introducing a new tax charge on loans made by non-UK resident close companies to their participators;
- merging the existing rules for loans to participators with the distributions code, to produce better alignment between the two regimes;
- tightening up the rules that allow for capital treatment where a retiring owner-manager sells their shares back to their company; and
- introducing new anti-avoidance rules to replace or supplement the existing transactions in securities regime.
These are potentially landmark changes to long-standing features of the UK tax code. We will be carefully considering the implications and would welcome dialogue with any businesses and individual taxpayers that may be affected by these reforms.
The consultation is open for responses until 14 September 2026.
Macfarlanes is a pre-eminent law firm advising a global client base across Private Capital, Private Wealth, M&A and Disputes.
Visit our website to learn more about our services and how we can assist.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
[View Source]
