HMRC’s latest consultation on the taxation of distributions and repayments of capital from companies could have significant implications for business owners, entrepreneurs, and family companies considering shareholder exits, succession planning, resolving disputes, or ahead of investment.

The consultation, published on 23 June 2026 and open until 14 September 2026, is not draft legislation and does not change the law today. However, it signals a clear direction of travel: HMRC is reviewing whether certain returns of value to individual or trust shareholders should continue to receive capital gains tax treatment where the economic result is similar to a dividend.

The consultation lands against a changing political backdrop. Andy Burnham is now Prime Minister and his ambitions are considerable: fixing social care, bringing key sectors such as water and energy under greater public control, and launching the biggest council house-building programme since the post war period - all without reducing government expenditure in other areas. Taken together, this makes the medium-term direction of UK tax policy clear. Funding these ambitions is likely to require significant tax increases, and with a growing debate around increased taxes on wealth and capital gains, business owners could be particularly affected.

Why HMRC is looking again at capital treatment

HMRC is concerned that similar shareholder extractions can be taxed differently depending on structure. The consultation focuses on value withdrawn from a continuing business, where capital gains tax treatment may be available even though the outcome is economically close to a dividend.

Share buy backs and capital reductions after share-for-share exchanges

HMRC proposes to limit the capital recognised in a new holding company after a share-for-share exchange by reference to the shareholder’s original subscription amount. In many cases this will result in amounts that are currently taxed as a capital gain being charged to income tax.

Demergers and business separations

In recent years, capital reduction demergers have become the preferred route for splitting a company’s business activities, assets, or group structures in a tax neutral manner. As these would also be affected, HMRC is proposing changes to the statutory demerger rules, including widening them to investment activities. However, even with these relaxations, statutory demergers are likely to remain far less flexible than capital reduction demergers and the proposed five-year restrictions on onward disposals, changes of control, and winding up will need careful testing against commercial plans.

Share buybacks and retiring shareholders

The purchase of own shares rules is also under review, with HMRC considering mechanical conditions such as minimum ownership and working periods, a full exit requirement, and limits on staged transactions. Greater certainty would be helpful, however as with demergers, tighter conditions could reduce flexibility for genuine commercial transactions.

Non-UK companies and shareholder loans

HMRC is proposing that loans from non-UK companies, which would be close companies if UK resident, should be brought within the loans to participators regime. This would result in material tax charges on internationally mobile families and other UK resident shareholders with loans from overseas companies.

Transactions in securities

Finally, HMRC is considering whether the transactions in securities rules should be modernised. These rules already give HMRC a route to counteract some capital extraction planning, but they can be complex and fact-sensitive, and HMRC expects the new rules to be clearer and more principles based. However, it also states that it will tackle scenarios where a taxpayer is party to arrangements that enable them to extract value from a company and avoid paying tax – so we can expect more transactions to be caught.

What should businesses consider now?

For business owners, the message is not to assume that today’s exit routes will remain available in the same form.

The proposals could affect:

• Owner exits and partial exits, including company purchase of own shares transactions

• Family succession planning, particularly where ownership is being passed gradually or where a shareholder remains connected to the business

• Demergers and business separations, especially capital reduction demergers and structures used to separate trading and investment activities

• International structures, including UK-resident shareholders in non-UK companies and offshore family investment arrangements

• Clearance strategy, because transactions may need to be assessed against both existing anti-avoidance rules and any future framework

The consultation is at an early stage and HMRC has stated it wants to understand the wider commercial impact before deciding whether to proceed. That is important: many of the structures under review are not avoidance arrangements; they are used to solve real shareholder, succession, and governance issues. However, the direction of travel suggests HMRC and the Government are increasingly focused on whether value extracted from a continuing business should be taxed as income rather than capital. Owners who are already considering a buyback, group reorganisation, demerger, or succession plan should factor this into their timetable.

Our view is that the consultation should be taken seriously, but not treated as an immediate trigger to accelerate transactions without proper commercial analysis. The proposals may change, and any legislation could include transitional rules or exceptions. Nevertheless, the consultation creates a strong reason to review existing plans now and consider accelerating plans if the tax treatment is dependent on the existing framework.

How we can help

If you are considering a shareholder exit, purchase of own shares, demerger, family succession plan or restructuring involving UK or non-UK companies, Buzzacott can help you assess how the consultation could affect your options.

We can review your current structures, model the potential tax outcomes under both existing and proposed rules, and identify where HMRC clearance may be appropriate. Fill out the form below and we’ll be in touch.