Section FA 4 — Income Tax Act 2007: Recharacterisation of shareholder’s base: company repurchasing share

FA 4 Recharacterisation of shareholder’s base: company repurchasing share When this section applies (1) This section applies to a shareholder in a company in relation to an off-market cancellation of shares by the company under section CD 22 (Returns of capital: off-market share cancellations) when— (a) the shareholder holds the share as revenue account property; and (b) after the cancellation, they continue to hold some shares of the same class. When whole amount treated as dividend (2) If the whole of the amount that the shareholder receives for the cancellation is treated as a dividend, the following paragraphs apply: (a) the shareholder is not regarded as having disposed of the cancelled share, except for the purpose of determining whether they have derived a dividend; and (b) the amount is added to the cost of the shareholder’s remaining shares of the same class under subsection (6). Below market value of shares (3) If subsection (2) does not apply, and the amount paid by the company is less than the market value of the shares at the time when notice is first given of the cancellation either by the shareholder or the company, the following paragraphs apply: (a) an amount calculated using the formula in subsection (4) is added to the cost of the shareholder’s remaining shares of the same class under subsection (6); and (b) the amount is excluded from the cost of the share being cancelled so that the shareholder is denied a deduction under section DB 25 (Cancellation of shares held as revenue account property) for the amount unless the share is trading stock of the shareholder; and (c) sections GC 1 and GC 2 (which relate to the disposal of trading stock for inadequate consideration) does not apply. Formula (4) The formula referred to in subsection (3)(a) is— share cost − (cost pre-cancellation × amount from cancellation ) market value. Definition of items in formula (5) In the formula,— (a) share cost is the cost of the cancelled share to the shareholder: (b) cost pre-cancellation is the total cost to the shareholder of all their shares of the same class immediately before the cancellation: (c) amount from cancellation is the amount derived by the shareholder from the company for the cancellation: (d) market value is the total market value of all the shareholder’s shares of the same class immediately before the cancellation. When subsection (7) applies (6) Subsection (7) applies at a time after the cancellation when the cost of the remaining shares is taken into account under subpart EB (Valuation of trading stock (including dealer’s livestock)), or otherwise. Adding amount to cost of shares (7) The amount referred to in subsection (2)(b) or (3)(a) must be fairly divided among, and added to, the cost of the shareholder’s remaining shares of the same class. Defined in this Act: amount , company , deduction , dividend , market value , notice , off-market cancellation , revenue account property , share , shareholder , shares of the same class , , trading stock Compare: 2004 No 35 s FC 4