HMRC proposal would increase tax due when money is taken out of a company
The tax due when shareholders take money out of a company could increase, say leading audit, tax and business advisory firm, Blick Rothenberg.
Malli Kini, a partner at the firm, said: “The rules for how shareholders are taxed when taking money out of a company are decades old. HMRC wants to update them so more payments are taxed as income, at a rate of up to 47%, instead of capital gains, which has a lower rate of up to 24%.”
He added: “Currently if a holding company is put on top of a trading company so value can be extracted afterwards, a later buyback of shares or capital reduction is taxed largely as a capital gain rather than as income. The proposed change would tax almost the whole amount as income instead. If shareholders have a transaction like this in mind, it’s worth acting while the current rules still apply.”
Malli said: “The common routes to split a business without a tax charge, statutory demergers and liquidation demergers, could be closed off by the proposals. In exchange for this, official statutory demerger relief would be made easier to use for investments, businesses and family successions. If a split is on their horizon, owners need to be aware that the tax rules they have planned to rely on could change.”
He added: “A positive change is that if someone is selling shares back to their company as they step away, their eligibility for Point of Sale (POS) relief that lets a departing shareholder be taxed at capital rates would be clearer with a more mechanical set of conditions. Meaning if a shareholder has had a 5%+ holding for two years and has worked in the business, a full exit of shares and any directorship, and does not return to the business within five years (longer where family is involved) they will be eligible. However, any phased or partial exits will still need careful planning.”
Malli said: “The tax rules for people who hold shares in, or borrow from, a company based outside the UK could change. HMRC aims to bring the tax on payments from overseas companies in line with UK taxes and introduce a charge that would be payable where there are long-term loans from closely held overseas companies that currently escape tax.”
He added: “directors or shareholders of private companies where a dividend or buyback was done incorrectly may have some good news. HMRC wants to tidy up the messy tax position that arises when a distribution turns out to be invalid, including the rules that avoid the same amount being taxed twice.”
Malli said: “There is no immediate change and no need to act hastily, but those with transactions in the pipeline such as buybacks, capital reductions, demergers and reorganisations should review them while today’s rules apply, as taxation changes like this can sometimes take effect from the date they are announced. For people with overseas structures it is worth checking how the proposals would affect future extractions or existing loans.”
He added: “Finally those concerned should make sure they have a say. HMRC’s consultation on this opened 23rd June 2026 and closes 14 September 2026. There is real scope to flag where the proposals would catch ordinary c