At the Autumn Budget 2026, HMRC published its response to the consultation on the tax treatment of distributions and capital repayments from companies. The Government confirmed that all seven areas of reform will go ahead. Private capital funds and genuine business succession received concessions, while internationally mobile individuals and owners of businesses held through non-UK companies now face more uncertainty, not less.
Timing and numbers
The Government expects just under £2.5bn from the measure over the scorecard period. The figure is soft: there is little detail so far, and taxpayer behaviour is hard to predict. The detailed rules will be settled in a technical consultation in 2027 and are due to apply from April 2028.
Payments from non-UK resident companies
The Government plans to align fully the tax treatment of distributions from UK and non-UK companies. Funds get an exception: returns on asset managers’ co-investment and genuine investment returns in fund structures will keep capital treatment where current rules allow it. How this will be written into legislation is not yet clear.
Outside funds the position is tougher. UK residents who hold investments, businesses or other assets through non-UK structures will probably pay income tax on most payments from them, loans included. The response acknowledges calls for updated anti-avoidance rules and promises to look at double taxation, coordinating with the consultation on US LLCs. It does not say how the new rules will sit alongside existing legislation under which a UK resident can be taxed on a non-UK company’s profits before they are distributed. Nor does it address the interaction with the offshore-structure rules now under review, or differences in company law between countries.
Demergers
UK companies can demerge under the statutory regime or outside it. The statutory route is rarely used because its technical conditions often clash with commercial reality. The consultation proposed a “frozen capital” rule, limiting capital returns to the amount originally subscribed for the shares. That would have shut the capital reduction route and pushed businesses towards costlier liquidations or early break-up of groups.
The Government has partly backed down. Statutory demerger conditions will be relaxed so that, in some cases, a demerger ahead of a later sale can qualify, for example where divisions of a trading group are sold to third parties. The requirement that “all” of the distributing company’s interest be conferred will be dropped, and listed companies are excluded from the frozen capital rule. Whether that is enough depends on the final conditions.
Purchase of own shares
The reform of the rules allowing capital gains treatment on a company buying back its own shares will also proceed. The Government says it wants to support genuine business succession, including family businesses passing to the next generation. The requirement that the seller was an employee for the two years before the sale will be relaxed. The proposed 5% minimum shareholding will be examined further so that it works across different situations, including for minor investors. HMRC confirmed it does not intend to undermine tax-advantaged employee share schemes.
There is no sign that buybacks used to fund inheritance tax will be widened, even though full business property relief is now capped at £2.5m.
Transactions in securities rule
This rule stops people taking value out of a company as a capital receipt when it would otherwise be taxed as a dividend at higher rates. Detail on the changes is thin. Many consultation respondents thought strengthening the existing rule would be a better first step than fundamental reform, but the Government appears unwilling to take that route. More proposals are expected in the technical consultation.
We advise on the taxation of distributions, ownership structures and corporate documentation. Get in touch at fbs-tax.com.