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FTT Finds for Taxpayer in Share Buy Back Case
Tuesday 16th December 2025
The FTT finds for the taxpayer in a case involving the tax treatment of a company repurchase of shares from its founder and whether it was carried out for the benefit of a relevant trade.
In Boulting v HMRC 2025 UKFTT 1272], the appellant [B] appealed against a closure notice issued in October 2019 which amended his 2014/15 tax return to reflect HMRC’s view that the consideration for the buyback of own shares by PSC Training and Development Group Ltd (PSC) should be taxed as a distribution and not as a capital gain, for which entrepreneurs relief (as it then was) could be claimed. The effect of the amendment was to increase B’s tax liability by over £1m.
S. 1033 CTA 2020 provides for the conditions for a payment by a company in respect of its own shares to be treated as a capital gain and not a distribution. In particular, the point in dispute was whether or not Condition A was met. The relevant part of Condition A is: “(2) Condition A is that – (a) the … purchase is made wholly or mainly for the purpose of benefiting a trade carried on by the company or any of its 75% subsidiaries …”
In 1993, B and two other individuals undertook the management buyout of a training business via a company. B was the majority shareholder, owning 55% of the company (55 shares) and two other individuals owned 25% and 20%. In 1998 the company was restructured and PSC was put in place as a holding company via a share for share exchange, so that the holding company was owned in the same proportions as the original company. B was the managing director of PSC from its formation until he retired, and was chairman of the board of directors of both PSC and the operating company (STG) until he retired.
Following various transactions with family members, and before the events involved in this appeal, B had reduced his shareholding in the company to 50 B shares. The other shareholders at the time of B’s retirement were one of his sons (M) with 25 B shares, acquired from one of the other original shareholders. Other shareholders held 25 shares.
There followed various disputes over the management of the company and investment plans, and, in 2013, it was decided that B would retire as a director to allow his son M to take forward a new management strategy. The retirement process took over a year, during which there were discussions as to how to achieve B’s retirement from the business given financial constraints in the company and the family.
Ultimately, it was proposed that B would give 38 shares to M and sell 8 shares back to the company. He would retain 4 shares to be given to his grandchildren. This proposal was discussed at a board meeting in September 2014 and it was decided that the purchase was necessary for the long term sustainability of the company.
In October 2014, the company’s accountants applied to HMRC for clearance and for confirmation that the proposed purchase would be subject to CGT only. The application contained all of the information required by SP 2/82, including that the purchase was to be made wholly or mainly for the purpose of benefiting the trade carried on by the company and was not part of a scheme to enable B to avoid tax or to participate in the profits of the company without receiving a dividend.
HMRC gave clearance in which it was stated that s.1033 would apply to the proposed purchase in the circumstances described in the clearance application.
In October 2016, HMRC opened an enquiry into B’s self-assessment tax return which treated the sale of his shares to the company as subject to capital gains tax. In October 2019, HMRC issued the closure notice treating the sale as subject to income tax and concluding that the clearance was void on the basis that the share value used by the company was materially greater than market value and, as this had not been disclosed in the clearance application, HMRC were not bound by the clearance.
An application for judicial review of the decision to void the clearance was made, but refused on the basis that, if the grounds were arguable, there was an alternative remedy to the parties in the form of an appeal to the FTT.
HMRC contended that the purchase was not actually necessary to benefit the relevant trade, that the business was already profitable and growing and there was no clear evidence that the purchase was essential to unlock investment or resolve deadlock.
HMRC also submitted that because the price paid was excessive, it followed that it could not be regarded as a payment whose whole or main purpose was to benefit PSC’s trade. In closing submissions, they contended that the purchase was a mechanism to remunerate B for his historic investment and risk in the business, not to benefit the ongoing trade.
B contended that the price paid was not excessive and that the purchase was wholly or mainly for the purposes of benefiting the trade as it removed a majority shareholder who had been blocking investment and who would not relinquish key decision-making responsibility.
The FTT found on the evidence that the company’s purpose in undertaking the share purchase was to secure B’s exit from the business in order to benefit the trade by resolving management level disputes and enabling investments to be made. Whilst the share purchase did not achieve his exit in isolation, it was a prerequisite for the rest of the arrangements to take place and the legislation does not state that the purchase must achieve the purpose in isolation. It found that Condition A was met and that the company purchase of B’s shares was wholly or mainly for the purpose of benefiting the trade carried on by PSC or any of its 75% subsidiaries.
HMRC’s arguments in this case appear contradictory in parts, were confusing in relation to the reasons for the withdrawal of the clearance and their arguments as to purpose.
If you would like more detail on the above decision, please contact Keith Rushen on 0207 486 2378.
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