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

What to do as the age of cheap money and overpriced equities ends
Investment strategy

What to do as the age of cheap money and overpriced equities ends

The age of cheap money, overpriced equities and negative interest rates is over. The great bond bull market is over. All this means you will be losin…
29 Sep 2022
Why everyone is over-reacting to the mini-Budget
Budget

Why everyone is over-reacting to the mini-Budget

Most analyses of the chancellor’s mini-Budget speech have failed to grasp its purpose and significance, says Max King
29 Sep 2022
Mini-Budget: will Kwasi Kwarteng’s gamble on growth work?
Budget

Mini-Budget: will Kwasi Kwarteng’s gamble on growth work?

The government has launched the biggest dash for growth in 50 years, relaunching an approach known as supply-side economics. What is the plan – and wi…
30 Sep 2022