24.3.2026 | Tax

For many business owners, stepping away from a company they have helped build is one of the most difficult decisions they will ever make. Here, Andrew Diver, Head of Tax at Beatons Group, explains that when the time does come – whether due to retirement, succession planning, or simply a desire to move on – there are practical and tax implications of exiting a company which need careful thought.

At the moment, we are seeing a growing number of shareholders considering their exit options. Rising tax rates and upcoming changes to capital gains tax are prompting many business owners to review their positions and decide whether now is the right time to act.

However, one of the challenges for shareholders in private companies is that selling shares externally is often far from straightforward.

Unless the shares offer control of the business, it can be difficult to find a buyer willing to invest.

In these situations, a Company Purchase of Own Shares can provide an effective solution.

What does this mean?

In simple terms, this is where the company itself buys the shares from the exiting shareholder. The company then cancels those shares, meaning the remaining shareholders own a larger percentage of the business.

For example, if three shareholders each hold 30 shares (one-third each) and one shareholder sells their shares back to the company, those shares are cancelled. The two remaining shareholders would then each hold 50 per cent of the company.

Provided certain conditions are met, the payment received by the exiting shareholder can be treated as a capital gain, rather than income. And this can make a significant difference from a tax perspective.

How does it work?

Currently, qualifying gains are taxed at 14% on the first £1 million, with gains above that amount taxed at 24%. However, the 14% rate will increase to 18% from 6 April 2026, which is why some shareholders are reviewing their options now.

Even relatively modest transactions can result in meaningful tax savings. For example, a sale of shares worth £150,000 completed before the change could save around £6,000 in tax. For larger transactions above £1 million, the savings could be as much as £40,000.

Company purchases of its own shares are often used when a shareholder is retiring or stepping back, while the remaining shareholders continue running the business.

They can also be helpful where shareholders want to go in different directions, and one party wishes to continue with the company without the dissenting shareholder.

However, several important conditions must be satisfied.

The company must be able to fund the purchase from distributable profits, and the shareholder must usually have held the shares for at least five years. After the sale, the exiting shareholder must also cease to be connected with the company.

There is also a small stamp duty payable by the company, at 0.5% of the share value. For example, a £500,000 share buyback would incur £ 2,500 in stamp duty.

As with many areas of tax planning, the detail matters. If the rules are not followed correctly, HMRC could treat the payment as a dividend instead, which could mean tax of up to 39.35% – and nobody wants that!

Therefore, for business owners considering their next chapter, taking professional advice early can make a significant difference – helping ensure the exit is both smooth and tax-efficient.

For more advice, contact beatons.co.uk