In Bostan Khan v HMRC [2020] UKUT 0168, the Upper Tribunal (UT) rejected a taxpayer’s argument that a company purchase of his shares was not a distribution as it was part of his wider agreement to purchase a controlling interest in the company.

  • Mr Khan wished to purchase a cash-rich company. Its owners were keen to avoid the unfavourable taxation of a pre-sale dividend. 
  • He agreed to purchase the entire share capital of 99 shares for cash of £1.95m. On the same day, he arranged for the company to purchase 98 out of his 99 shares for cash of £1.95m.
  • HMRC raised an Income Tax assessment on the £1.95m on the basis that he had failed to meet the qualifying five-year ownership condition for a Purchase of Own Shares to be treated as a capital disposal.
  • The First Tier Tribunal (FTT) agreed with HMRC. The minimum period of ownership was not met and it dismissed his appeal.

The taxpayer appealed to the UT arguing that the company buy-back formed part of the share sale agreement and should not be taxed separately.

The UT found that the share sale and the share purchase were executed as separate agreements and advised on separately. It noted that there would be a significant difficulty if the buy-back was part of the share purchase, as the company had made a distribution and if this was not made to Mr Khan then this would mean that it was made to the selling shareholders.

As the selling shareholders had sold their shares to Mr Khan and only the shareowner could receive a distribution, it was plain that Mr Khan received the distribution and was entitled to receive it.

The appeal was dismissed.


An interesting argument although let down by the facts of the share sale and purchase.


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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