B/C share scheme

Companies occasionally hand cash back to shareholders by issuing new types of shares, typically called B shares and C shares

When companies have more cash on hand than they need, they may decide to hand some of it back to shareholders. In recent years, some firms have done this through what are known as special purpose share schemes. These schemes usually work by issuing new types of shares, typically called B shares and C shares, that are given to existing shareholders. Each shareholder gets the choice of which type of share they receive.

Shortly after issue, the company repurchases and cancels the B shares, handing the B share owners a profit taxed as a capital gain. Meanwhile, the C share owners get paid an equivalent dividend, taxed as income. The C shares then become worthless and are cancelled.

These schemes allowed shareholders to choose between receiving their payment as income or capital. Higher-rate taxpayers with an unused capital gains allowance could reduce their tax liability by choosing the capital alternative. But HMRC takes an increasingly dim view of this kind of dodge.

So from 6 April 2015, both alternatives have beentreated as income for tax purposes, eliminating the reason to offer these schemes.

Most Popular

A nightmare 1970s scenario for investors is edging closer
Investment strategy

A nightmare 1970s scenario for investors is edging closer

Inflation need not be a worry unless it is driven by labour market shortages. Unfortunately, writes macroeconomist Philip Pilkington, that’s exactly w…
17 Sep 2021
What really causes inflation? Here’s what prices since 1970 tell us
Inflation

What really causes inflation? Here’s what prices since 1970 tell us

As UK inflation hits 3.2%, Dominic Frisby compares the cost of living 50 years ago with that of today, and explains how debt drives prices higher.
15 Sep 2021
The times may be changing, but don’t change how you invest
Small cap stocks

The times may be changing, but don’t change how you invest

We are living in strange times. But the basics of investing remain the same: buy fairly-priced stocks that can provide an income. And there are few be…
13 Sep 2021