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.

Recommended

Resource curse
Glossary

Resource curse

The term “resource curse” refers to the observation that countries with abundant natural resources also tend to be less economically developed than th…
14 Jan 2021
Balance of payments
Glossary

Balance of payments

The balance of payments refers to the accounts that sum up a country's financial position relative to other countries.
8 Jan 2021
Yield-curve control
Glossary

Yield-curve control

Yield-curve control is when a central bank aims to control long-term interest rates by pledging to buy (or sell) as many long-term bonds as needed to …
25 Dec 2020
Intangible assets
Glossary

Intangible assets

An intangible asset is anything that a company owns that isn’t physical.
25 Sep 2020

Most Popular

Why we won’t see a house-price crash in 2021
House prices

Why we won’t see a house-price crash in 2021

Lockdown sent house prices berserk as cooped up home-workers fled for bigger properties in the country. And while they won’t rise quite as much this y…
18 Jan 2021
Inflation is the easiest way out of this – just don’t expect politicians to admit it
Inflation

Inflation is the easiest way out of this – just don’t expect politicians to admit it

The UK government borrowed £34.1bn in December, a record amount for that month. Britain's debt pile now amounts to 100% of GDP. How are we going to pa…
22 Jan 2021
The best investment trusts to buy for 2021
Investment trusts

The best investment trusts to buy for 2021

Sectors ranging from emerging markets to student accommodation look poised to do well this year, says David Stevenson, as he picks the best investment…
19 Jan 2021