In Bostan Khan v HMRC [2018] TC0752, an individual who personally bought out controlling shareholders found that the subsequent purchase by his new company of his shares did not qualify for Capital Gains Tax (CGT) treatment. His subsequent attempt to claim that the transaction was a trade failed too.

A company Purchase of Own Shares is treated as a capital disposal when the selling shareholder and company meet the various qualifying conditions.

  • Mr Khan, an accountant, wished to buy a company following a dispute by its owners and he wished to use the company profits to pay for the cost.
  • Instead of becoming a shareholder and executing a management buyout, see Exit Strategies: Index, he was advised to buy out the shareholders personally.
  • Once in control of the company, the company purchased his shares.
  • HMRC investigated the transaction and concluded that as he failed the minimum ownership test for a purchase of own shares. The sum paid by the company in excess of the nominal value should be treated as an income distribution.
  • Mr Khan appealed to the First Tier Tribunal (FTT) on the basis that his share purchase was a trading transaction.

The FTT found that:

  • Mr Khan acquired shares as an investor in the expectation of investment returns.
  • There was no trading in shares. The repurchase of his new shares by the company failed the minimum period of ownership condition required for capital treatment.
  • The appeal was dismissed.


Curiously, given the amount of coverage of this topic, it is yet another case where professional advisers seem unaware of the purchase of own share rules.

Useful guides

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.

Reorganisations: Case Study 6
Step by step with tax clearance: how to buy out a retiring shareholder

Purchase of Own Shares
Subscriber guide

Purchase of own shares: Masterclass 
Subscriber detailed checklist & steps

External links

Bostan Khan v HMRC [2018] TC0752



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