Tax Tip: Share Buy-Back

If you want to dispose of your shares in your company and don’t have a buyer, it may be possible for the company itself to purchase your shares and for you to treat the proceeds as a capital receipt on the sale of your shares.

Ordinarily a premium paid to a shareholder on the redemption of a share in an unquoted company is treated as a distribution of income that is subject to income tax. However, under Ireland’s share buy-back legislation the shareholder instead is chargeable to CGT on the premium provided certain conditions are met. These include:

  • The company purchasing its own shares must be an unquoted trading company or the unquoted holding company of a trading group.
  • The redemption, repayment or purchase must be made wholly or mainly for the benefit of the company’s trade or the trade of a 51 per cent subsidiary.
  • The redemption, repayment or purchase must not be part of any scheme the purpose of which is to enable the owner of the shares to participate in profits without receiving a dividend.
  • The vendor must be resident and ordinarily resident in the State.
  • The vendor must have owned or be deemed to have owned the shares for at least 5 years.
  • There must have been a proportionate reduction of at least 25 per cent in the vendor’s interest in:
    • the issued share capital, and,
    • the distributable profits of the company and, where appropriate, of the group of which the company is a member.
  • The vendor must not be connected with the company immediately after the purchase.

To find out how you can avail of this tax-break please arrange a consultation with one of our advisors.

Dara Burke, Stephanie Kirby or Joe McAvoy on info@mcavoy.ie

*This article is written in general terms and should not be relied on as a comprehensive summary of the revelant tax law.  Advice should always be sought before any action is taken.
 

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