If you own a company and may buy out a shareholder, separate parts of the business or return capital, HMRC’s latest consultation deserves attention. Published on 23 June 2026, it considers modernising the taxation of company distributions and repayments of capital. The consultation closes on 14 September 2026. These are proposals rather than enacted rules, and there is currently no confirmed implementation date.
The consultation does not propose changing ordinary dividend tax rates themselves. Instead, it focuses on situations where value is extracted through share buybacks, capital reductions, demergers, loans and distributions from non-UK companies. The underlying rules have remained broadly unchanged since Corporation Tax was introduced in 1965.
Why the distinction between income and capital matters
A dividend is generally taxed as income. For 2026/27, dividend rates above the £500 dividend allowance are 10.75% for basic-rate taxpayers, 35.75% for higher-rate taxpayers and 39.35% for additional-rate taxpayers.
Capital receipts may instead fall within Capital Gains Tax. The main individual CGT rates are 18% and 24%, depending on taxable income. Qualifying gains covered by Business Asset Disposal Relief are taxed at 18% for disposals made from 6 April 2026, subject to the £1 million lifetime limit.
This difference explains why the tax treatment of buybacks and capital repayments can materially affect the amount shareholders retain. HMRC’s consultation on GOV.UK sets out the proposals in full.
The main proposals
| Area | What HMRC is considering |
|---|---|
| Returns of capital | Freezing the capital recognised on shares in a new holding company at the amount originally subscribed for the underlying investment |
| Demergers | Removing the capital reduction route commonly used for non-statutory demergers while widening and clarifying the statutory demerger rules |
| Purchase of own shares | Replacing the subjective trade benefit test with clearer conditions covering ownership, employment, full exit and market value |
| Transactions in securities | Amending or replacing the existing anti-avoidance rules with a clearer, more principles-based regime |
| Non-UK company distributions | Bringing more distributions from overseas companies within rules similar to those for UK companies |
| Company loans | Clarifying the interaction between distributions and loans to participators, including possible rules for certain non-UK companies |
The proposals remain subject to consultation and may change before legislation is introduced.
One important proposal concerns holding-company reorganisations. A share-for-share exchange can currently increase the amount treated as capital for distribution purposes even though the original CGT base cost carries across. HMRC is considering a “frozen capital” rule based on the shareholder’s original subscription. This could cause a larger part of a later buyback or capital repayment to be taxed as income.
Need Help With Your Accounts Or Tax?
Whether you need support with self assessment, VAT returns, payroll, bookkeeping, CIS, company accounts or corporation tax, Asmat & Co Accountants can provide clear, practical advice for your business or personal finances.
What this means for owner-managed companies
There is no need to rush into a transaction simply because a consultation is open. However, planned buybacks, demergers, capital reductions and holding-company reorganisations should be reviewed before documents are signed. Existing rules remain in force, but the proposals indicate the direction HMRC is considering.
Day-to-day extraction should also be reviewed through salary versus dividends, particularly because dividend and BADR rates changed from April 2026.
Capital transactions require careful company-law and tax documentation. Our limited company accountants can work alongside your solicitor, while our guide to Companies House and HMRC deadlines helps you manage ongoing filings.
A taxable or reportable share disposal may need to be included in a director’s Self Assessment or another appropriate HMRC reporting route. Our tax return support can help you report the transaction correctly. Regular management accounts also provide useful information when assessing affordability and the effect of a proposed payment on working capital.
Get advice before restructuring
A sensible share structure created when setting up a limited company can reduce the need for a costly reorganisation later. These proposals concern companies and their shareholders, so they do not directly apply where you operate only as a sole trader.
Asmat Accountants can coordinate this work with payroll services and VAT returns. Whether you use our accountants in Slough or accountants in Reading, speak to us before completing a buyback, demerger or capital repayment.
Need Help With Your Accounts Or Tax?
Whether you need support with self assessment, VAT returns, payroll, bookkeeping, CIS, company accounts or corporation tax, Asmat & Co Accountants can provide clear, practical advice for your business or personal finances.
