Tribunal Rules Shareholder Exit via Share Buyback Qualifies for Capital Gains Treatment — Boulting v HMRC

Introduction
In Boulting v Revenue and Customs Commissioners [2025] UKFTT 1272 (TC), the First-tier Tribunal considered whether proceeds from a company’s purchase of its own shares should be treated as an income distribution or as a capital disposal subject to capital gains tax. The decision provides helpful clarification on how the “benefit of the trade” test in section 1033 of the Corporation Tax Act 2010 applies where a buy-back is driven by commercial, rather than personal, motives.

Facts
The case concerned a company owned and managed by several directors who were also shareholders. Over time, disputes arose among them, leading to a serious breakdown in relations at board level. The disagreements were viewed as harmful to the company’s business, and the remaining directors concluded that the best solution was to remove the dissenting shareholder to restore stability and protect the trade. To achieve that, the company bought back his shares using its own funds.

The payment to the departing shareholder was treated as a distribution by HMRC, who argued that the transaction was simply a way for the shareholder to extract profits. The taxpayer maintained that the buy-back was made wholly or mainly for the purpose of benefiting the company’s trade, and that it therefore met Condition A in section 1033 CTA 2010, entitling the proceeds to capital gains treatment.

Tribunal’s Decision
The Tribunal agreed with the taxpayer. It found that the company’s purpose was to remove a shareholder whose continued involvement was detrimental to the business and to enable the trade to continue effectively. On that basis, the transaction was held to satisfy the “benefit of the trade” condition.

As a result, the payment was not treated as an income distribution under section 1000 CTA 2010 but as a capital disposal within the capital gains tax regime. The Tribunal noted that this outcome made the proceeds potentially eligible for entrepreneurs’ relief (now Business Asset Disposal Relief), though the case itself did not turn on whether such relief was claimed.

Comment
The decision underlines that the motive for a buy-back is crucial in determining its tax treatment. Where a purchase of own shares is genuinely undertaken to protect or benefit the company’s trade, for instance to resolve a management dispute or remove a disruptive shareholder, it can qualify for capital gains treatment rather than being taxed as income.

Companies should ensure that the commercial rationale is clearly documented in board minutes and correspondence, as HMRC will expect to see evidence that the transaction served the company’s trading interests and was not designed to distribute profits.