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Consultation response: Modernising the taxation of distributions and repayments of capital from companies

17 September, 2026

The ATT has responded to HMRC's consultation on modernising the taxation of distributions and repayments of capital from companies ("the Consultation").

The Consultation proposes a wide-ranging package of reforms to the taxation of distributions and repayments of capital from companies. Overall, we are concerned that several of the proposed reforms could increase complexity and create unintended consequences for businesses and shareholders. While simplification and greater certainty are welcome objectives, any changes should be proportionate, evidence-based and carefully targeted to avoid creating barriers to entrepreneurship, succession planning and employee share ownership.

Given the scale and significance of the proposals, we believe ongoing stakeholder engagement will be essential before any reforms are finalised.

In our response to the Consultation, we recommend that HMRC:

  • Provide more compelling evidence that the existing Transactions in Securities regime is incapable of addressing the arrangements identified in the Consultation before introducing a broader mechanical rule.
  • Reconsider the proposed "frozen capital" approach, which could affect transactions undertaken for genuine commercial purposes.
  • Continue work to simplify and improve the statutory demerger regime, whilst recognising that the proposed changes do not fully compensate for the effective loss of the capital reduction demerger route.
  • Undertake further consultation on the proposed treatment of unlawful distributions and publish draft legislation to allow stakeholders to assess how the rules would operate in practice.
  • Exercise caution before introducing a section 455-style charge on loans or advances from non-UK resident closely controlled companies, recognising the compliance challenges such measures could create for the individuals involved.
  • Ensure that reforms to the Purchase of Own Shares rules do not unintentionally restrict legitimate commercial transactions, particularly in owner-managed and family businesses.
  • Provide stronger evidence that a new capital extraction anti-avoidance rule is required, including a clear explanation of why existing anti-avoidance provisions cannot address any identified concerns.
  • Undertake further consultation on the interaction between the proposals and employee share plans and the employment-related securities legislation. 
  • Involve specialists from HMRC's Employee Shares and Securities Unit in the development of any reforms to ensure that wider policy objectives relating to entrepreneurship and employee ownership are fully considered.

You can read the full ATT response to the Consultation here.