This mini-guide provides an overview of Capital Reductions.

A Capital Reduction is process permitted under the Companies Act 2006: the process does not require a a court order.

The process is the same whether the company is trading on or is considering ceasing trading.

Under a Capital Reduction the non-distributable share capital or reserves of a limited company may be distributed to shareholders.

When a company is ceasing trading it may need to perform a capital reduction in order to repay excess share capital and avoid Bona Vacantia. The alternative is a formal liquidation.

See also: Ceasing trading: overview

The tax treatment of a capital distribution made to a shareholder following a Capital Reduction depends on what is being paid, for example:

For companies continuing to trade, see Capital reduction: distributing capital reserves and Demergers: what are your options