What the HMRC Distributions Consultation 2026 Means for Company Owners

Company directors considering a share buyback, capital reduction or restructuring now have another factor to consider. HMRC’s consultation, “Modernising the taxation of distributions and repayments of capital from companies”, examines whether several long-standing rules governing value extracted from companies should be changed. The HMRC Distributions Consultation 2026 opened on 23 June 2026 and closed on 14 September 2026. None of the consultation proposals has, by itself, changed the current law.

The review matters because the tax consequences of extracting value from a company can differ materially depending on whether legislation treats the payment as an income tax distribution or a capital receipt subject to capital gains tax rules.

For 2026/27, dividend rates are 10.75%, 35.75% and 39.35%, depending on the shareholder’s tax band, with a £500 dividend allowance. The main CGT rates for individuals are 18% and 24%. Qualifying gains eligible for Business Asset Disposal Relief are charged at the separate BADR rate of 18% for disposals from 6 April 2026. 

Quick Answer

• HMRC published the consultation on 23 June 2026, and it closed on 14 September 2026.
• The consultation has not itself changed the law.
• It examines seven areas of the distributions framework.
• The main focus is shareholders within the income tax charge, principally individuals and trusts rather than corporate shareholders.
• Areas under review include capital repayments, demergers, overseas taxation of company distributions, shareholder loans, share buybacks and transactions in securities.
• Businesses should continue applying current law while distinguishing carefully between existing rules and consultation proposals.

What Is the HMRC Distributions Consultation 2026?

The consultation is a government review of how distributions and certain repayments of capital from companies should be taxed when the shareholder is within the income tax regime. HMRC says much of the underlying distribution framework has remained substantially unchanged since Corporation Tax was introduced in 1965.

HMRC is examining whether the existing rules remain appropriate where economically similar extractions can receive different tax treatment depending on their legal structure.

The consultation covers seven areas

1. Reductions and repayments of share capital
2. Corporate demergers
3. Distributions from non-UK resident companies
4. The interaction between distributions and loans to participators
5. Loans and other temporary extractions from certain non-UK resident companies
6. Purchase of Own Shares Relief
7. Transactions in securities rules

The consultation is mainly concerned with shareholders subject to income tax. HMRC states that the proposals are not intended to affect corporate shareholders directly.

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Have the Company Distribution Rules UK Changed Yet?

No. The consultation itself has not changed the company distribution rules UK that companies and shareholders currently apply.

HMRC says the government will analyse consultation responses and publish a summary following the consultation. It may also conduct further consultation on specific reforms before legislation is introduced.

The distinction between current law and proposed reform is therefore critical.

Area	Current Position	What the Consultation Considers
Ordinary dividends	Existing Income Tax rules continue	No general replacement of dividend taxation is proposed
Capital reductions	Existing distribution and CGT rules continue	Revisiting how new consideration and capital repayments are calculated in certain restructurings
Share buybacks	Existing Purchase of Own Shares rules continue	Replacing some subjective conditions with more mechanical tests
Loans to participators	Existing Section 455 rules continue	Possible priority rules where distributions and shareholder loans overlap
Overseas taxation of company distributions	Existing foreign distribution rules continue	Closer alignment with UK company distribution rules
Overseas shareholder loans	No equivalent general Section 455 charge on every overseas company loan	Possible new rules for certain closely controlled non-UK companies
Transactions in Securities	Existing ITA 2007 provisions continue	Amending or replacing the current regime

These remain consultation proposals unless and until legislation is enacted. If you want to know how much tax you could pay on your dividends? Use our free UK Dividend Tax Calculator to get an estimate based on your current circumstances.

Why Is HMRC Reviewing Repayments of Capital?

HMRC is reviewing repayments because certain restructurings can alter the amount regarded as share capital for distributions purposes without an equivalent new economic investment by the shareholder.

Under CTA 2010 section 1000(1)(B), a distribution out of a company’s assets in respect of its shares is generally within the distributions code, except to the extent that statutory exclusions apply, including a repayment of share capital or an amount representing new consideration received by the company. HMRC’s Company Taxation Manual confirms this treatment.

The consultation looks particularly at some share-for-share exchanges and holding-company restructurings.

Under certain existing arrangements, the value attributed to shares following a restructuring can produce a larger amount treated as capital for distribution purposes even where the shareholder has not contributed equivalent new funds.

The consultation considers whether the rules for new consideration and repayments of capital should be revised in these circumstances.

What Could That Mean for Company Owners?

If rules of this kind were enacted, some later payments that might currently fall partly within capital treatment could instead be treated more extensively as distributions.

This could change the capital distribution tax UK, particularly where a new holding company has been inserted above an existing business before capital is returned to shareholders.

However, this is not current law. The final approach may differ from the options discussed in the consultation.

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How Could Purchase of Own Shares Tax Rules Change?

The consultation considers substantial changes to the conditions under which a company’s purchase of its own shares can receive capital rather than distribution treatment. The existing rules remain in force for now.

Under current Purchase of Own Shares rules, qualifying purchases by an unquoted trading company can receive capital treatment where statutory conditions are satisfied.

Current conditions include, among other matters:

• the company generally being an unquoted trading company
• the purchase being wholly or mainly for the benefit of the company’s trade
• the seller being a UK resident
• the seller generally having held the shares for at least five years
• a substantial reduction in the seller’s interest
• The seller must generally not be connected with the company immediately after the purchase, subject to the detailed statutory rules and exceptions.
• anti-avoidance conditions concerning continued participation in company profits.

The five-year ownership period can be reduced in certain inherited-share cases.

What New Share Buyback Conditions Is HMRC Considering?

HMRC is considering the following conditions. These proposals do not currently replace the existing Purchase of Own Shares rules.

Options discussed in the consultation include:

• requiring the seller to have at least a 5% equity interest
• requiring ownership and employment with the company for at least two years
• requiring the shareholder to surrender their entire shareholding and directorship
• allowing certain staged exits where the shareholder fully leaves within two years
• preventing consideration from exceeding market value
• potentially applying a five-year ownership and working requirement where family connections with remaining shareholders continue
• potentially withdrawing relief where a former shareholder returns as a shareholder or director within five years, subject to proposed exceptions.

These proposals could materially change the purchase of own shares tax planning if enacted, but they should not be applied as today’s eligibility test.

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How Could the Consultation Affect Directors’ Loans and Loans to Participators?

The consultation explores possible rules for transactions where the distributions regime and participator loan rules can overlap.

Under current legislation, Section 455 CTA 2010 can impose a tax charge on a close company where it makes a loan or advance to a participator or certain associates and statutory conditions are satisfied.

For relevant loans and advances from 6 April 2026, the rate is 35.75%. The rate is linked to the dividend upper rate, which increased to 35.75% for 2026/27.

Importantly, Section 455 is generally a company-level tax charge, not simply an income tax charge imposed directly on the director receiving the loan.

The consultation explores possible mechanisms for resolving situations where a transaction could fall within both the distributions rules and Section 455.

Options include:

• determining which tax regime should take priority
• addressing payments originally intended as distributions that later become repayable
• potentially placing aspects of HMRC’s treatment of inadvertent or defective distributions onto a statutory footing.

No new priority rule is currently in force.

Could Loans From Overseas Companies Face New UK Tax Rules?

Yes. The consultation separately considers whether new rules should apply to loans or other temporary extractions received from certain non-UK resident companies.

This is distinct from the existing Section 455 regime.

HMRC is considering circumstances involving a non-UK company that would broadly resemble a close company if it were a UK resident. Because the overseas company may itself fall outside the UK Corporation Tax charge, the consultation examines alternative ways of imposing an appropriate UK tax charge.

Some options could place liability on the UK-resident individual receiving the value, rather than replicating the existing UK close-company mechanism exactly.

This could be particularly relevant to UK-resident owners of overseas family businesses and closely controlled international companies.

Again, these are options being considered, not existing rules.

Could Distributions From Non-UK Companies Be Treated Differently?

Yes. The consultation explores whether the income tax treatment of distributions from non-UK resident companies should be brought closer to the treatment applying to UK resident companies.

Current international structures can raise difficulties because overseas corporate law does not always use concepts equivalent to UK share capital, dividends or capital repayments.

HMRC, therefore, asks how the UK should identify distributions and capital amounts where adequate information about a foreign company’s share capital or equivalent accounts is unavailable.

Any eventual reform could affect UK-resident individuals and trustees holding shares in overseas owner-managed companies or family businesses.

It does not mean that all overseas capital payments will automatically become dividends.

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What Could Change for Corporate Demergers?

HMRC is considering whether the statutory demerger regime should be modernised alongside other changes to the distributions framework.

Existing statutory demerger provisions can allow qualifying transactions to proceed without what would otherwise be an Income Tax distribution charge, provided the detailed statutory conditions are satisfied.

The consultation recognises that tightening other routes to capital treatment could interfere with genuine commercial separations if the statutory demerger regime remains too restrictive.

HMRC therefore considers potential changes to conditions governing matters such as:

• subsequent disposals
• changes in control
• cessation of activities
• winding-up after a demerger.

These are consultation options and should not be treated as current statutory tests.

Businesses considering a demerger should continue applying the existing legislation and clearance procedures until any new rules are enacted.

What Could Happen to the Transactions in Securities Rules?

The government is considering whether to amend or replace the existing rules with an updated anti-avoidance regime. However, the design of any replacement remains under consideration and no new regime is currently in force.

The existing provisions are contained in Part 13, Chapter 1 of ITA 2007 for individuals.

Broadly, the rules can apply where transactions involving securities produce an Income Tax advantage and the statutory conditions are met.

They are particularly relevant where arrangements potentially convert what would otherwise be taxable income into capital.

An advance statutory clearance mechanism currently exists. HMRC must generally notify an applicant of its clearance decision within 30 days of receiving the necessary particulars or any further information it requests.

The consultation indicates that the government wants an updated regime that deals more clearly with modern transactions while preserving protection against income-to-capital conversion arrangements.

Why Does the Income Versus Capital Distinction Matter in 2026/27?

The distinction matters because dividend income tax and CGT apply under different rules, rates and relief regimes.

For the tax year 6 April 2026 to 5 April 2027:

Tax Treatment	2026/27 Position
Dividend ordinary rate	10.75%
Dividend upper rate	35.75%
Dividend additional rate	39.35%
Dividend allowance	£500
Main CGT rates for individuals	18% / 24%
Business Asset Disposal Relief rate	18%
Individual CGT Annual Exempt Amount	£3,000
Main CGT rate for most trustees	24%
Annual Exempt Amount for most trustees	£1,500

HMRC confirms the 2026/27 dividend rates and the £500 dividend allowance.

For disposals from 6 April 2026, HMRC confirms that the main CGT rates for individuals are 18% and 24%, while gains qualifying for Business Asset Disposal Relief or Investors’ Relief are charged at a separate 18% rate.

This distinction is important. BADR is not simply the standard 18% CGT rate and does not apply automatically to every share sale, company buyback or capital distribution.

The legal character of a transaction must be established before comparing possible tax rates.

For a broader explanation of current extraction methods, see Apex Accountants’ guide to taking money out of your limited company.

What Should Company Directors Do While the Consultation Is Unresolved?

Company directors should continue applying existing legislation but consider the consultation when planning transactions whose tax treatment depends heavily on whether an extraction is income or capital.

Particular care may be appropriate before:

• introducing a holding company
• reducing or repaying share capital
• completing a significant company share buyback
• restructuring a family-owned company
• carrying out a statutory or non-statutory demerger
• settling a substantial director’s loan account
• extracting accumulated company value
• entering arrangements potentially within transaction rules.

This does not mean these transactions should be postponed automatically.

The practical approach is to determine the capital distribution tax UK under current law, document the commercial purpose and then consider whether announced or proposed reforms create an additional timing or structuring risk.

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FAQs

Has HMRC changed the rules for withdrawing money out of the company?

No. HMRC’s 2026 consultation has not itself changed the law. The consultation closed on 14 September 2026, and the government is considering responses before deciding which proposals should proceed.

Are capital repayments being abolished?

No. The consultation does not propose a general abolition of capital repayments. It examines, among other issues, whether the rules determining new consideration and repayments should change in certain restructuring situations.

Will every company share buyback become taxable as a dividend?

No. Existing purchase of own shares legislation continues to determine whether qualifying buybacks receive capital treatment. HMRC is considering different eligibility conditions, but those proposed tests have not yet replaced the current rules.

Does section 455 apply to every director’s loan?

No. Section 455 applies in specified circumstances where a close company makes a loan or advance to a participator or certain associates. Whether a charge arises depends on the company’s status, the recipient, the nature and timing of the loan and other statutory conditions.

For relevant loans from 6 April 2026, the Section 455 rate is 35.75%.

Can HMRC treat a capital transaction as income?

Potentially. Existing legislation can treat some company payments as distributions, while the Transactions in Securities provisions can counteract arrangements meeting the statutory conditions for an income tax advantage.

The correct treatment therefore depends on the legal form and substance of the transaction rather than simply how the payment is described.

Should I delay a company restructuring until the new rules are known?

Not automatically. Existing law remains applicable, and genuine commercial transactions can continue.

However, where a proposed restructuring depends heavily on capital treatment, directors should assess both the current statutory position and the possibility that future legislation could affect transactions implemented later.

How Can Apex Accountants Help With Company Distributions?

Before making a substantial shareholder extraction, completing a share buyback or restructuring a company, the next step is to establish how the transaction is taxed under current law, rather than planning on the assumption that consultation proposals are already effective.

Apex Accountants can review dividend planning, director’s loan accounts, capital transactions, company restructuring and shareholder extraction strategies. Our tax planning services can help assess the personal and company tax consequences before a transaction is implemented.

Where Corporation Tax issues are also involved, our corporation tax services provide further support with company tax compliance and planning.