Under a company buyback of shares, what is the tax treatment where a limited company is funding the premiums?
This information is for financial advisers only. It mustn’t be distributed to, or relied on by, customers.21 October 2016
The company doesn’t receive any corporation tax relief on the premiums because the policy isn’t to meet loss of profits on the death or critical illness of the shareholder. In other words, the expense doesn’t meet the wholly and exclusively for the purposes of the business rule. As the company owns the policy and pays the premiums, there are no tax implications for the shareholder.
On a claim, the policy proceeds are paid to the company and shouldn’t be liable to corporation tax as they’re normally treated as a capital rather than a revenue receipt.
This information is based on our understanding of taxation law and HMRC practice, at date of publication.