In Boston Khan v HMRC [2021] EWCA Civ 624, the Court of Appeal agreed that a company purchase of its own shares was not part of a wider arrangement whereby the taxpayer acquired a controlling interest in the company. The conditions for capital treatment were not met and the repurchase was a distribution.

Mr Khan agreed to purchase a cash-rich company. Its owners (the vendor shareholders) wished to avoid the unfavourable tax treatment of taking a pre-sale dividend. 

The Court of Appeal (CoA), whilst having some sympathy, with Mr Khan agreed with the lower courts and dismissed the appeal:

The opening line of the CoA decision neatly sums it up; “This is a cautionary tale, which illustrates all too graphically the importance of seeking specialist tax advice before entering into commercial arrangements that might have adverse tax consequences, however remote that risk might appear.”

Useful guides on this topic

Exit strategies: Index 
Company owners have a number of options available to them when it comes to passing on their business or realising their investment.

Purchase of Own Shares
How can a company repurchase its share capital? What are the Companies Act requirements? What are the tax consequences for company and shareholder?

Purchase of own shares: Masterclass 
A Checklist (Masterclass) for dealing with a Company Purchase of Own Shares.

External link

Boston Khan v HMRC [2021] EWCA Civ 624 

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