Exiting a Company by Share Buyback – Capital Gains Tax (CGT) or Income Tax?

By Elizabeth Kelly, 20th March 2026

A shareholder may wish to exit a company for various reasons. The purchase by a company of its own shares is one of the most useful methods of exiting a business. Below, we will consider the specific tax issues that practitioners must be mindful of when effecting a share buyback.

Capital Gains Tax

Where a company acquires its own shares and an amount is paid in excess of the original share issue price, this amount is normally treated as an income distribution. It is liable to Income tax/PRSI/USC in the hands of the shareholders with potential simultaneous Dividend Withholding Tax (DWT) implications.

Sections 176–186 TCA 1997 allows for Capital Gains Tax (CGT) treatment of the proceeds received where a company acquires its own or its holding company’s shares provided certain conditions are satisfied. In addition to the preferential tax rate associated with CGT treatment, certain beneficial CGT reliefs may be available to the shareholder, e.g. Entrepreneur Relief.

1. The conditions which must be satisfied in order for CGT treatment to apply to a share buyback include the following:
2. The company must be an unquoted trading company or the unquoted holding company of a trading group.
3. The shareholder must have owned the shares for at least five years ending on the date of the disposal or two years in the case of inherited shares.
4. The shareholder participating in the buyback must be both resident and ordinarily resident in the State in the tax year in which the buyback takes place.
5. The buyback must be wholly or mainly for the benefit of the company’s trade or any of its 51% subsidiaries.
6. The redemption must not form part of a scheme or arrangement, the main purpose or one of the main purposes of which is tax avoidance, e.g. to enable the owner of the shares to share in the profits of the company without receiving a dividend.
7. The shareholder’s remaining shareholding, following the redemption of the shares, cannot exceed 75% of its value pre buyback.
8. The shareholder must no longer be connected with the company after the buyback, meaning they and their associates must own less than 30% of the company’s share capital, voting power, or loan capital post-transaction.

Trade Benefit Test

As outlined above, in order to qualify for CGT treatment, the buyback or redemption must be “wholly or mainly for the benefit of the company’s trade or any of its 51% subsidiaries”.

Revenue has provided guidance on this “Trade Benefit Test” as follows:

• It must be demonstrated that the sole/main purpose of the buyback is to benefit a trade carried on by the company or of one of its 51% subsidiaries.
• The Trade Benefit Test would be breached if the sole/main purpose was to benefit the shareholder by reducing their tax liability as a result of the more favourable CGT treatment.
• From a company perspective, the test would not be met if the sole/main aim was to benefit any business purpose other than a trade.

Revenue guidance states that Revenue will typically regard a buyback as benefiting the trade where:

• There is a disagreement between the shareholders over the management of the company, and that this disagreement is having an adverse effect on the company’s trade and where the effect of a share buyback would be to remove the disgruntled shareholder

or

• The purpose of the share buyback is to ensure that an unwilling shareholder who wishes to end their association with the company does not sell their shares to someone who might not be acceptable to the other shareholders.

Below are some typical situations where share buybacks can apply:

• The departure of a disgruntled shareholder.
• The retirement of a controlling shareholder who wishes to make way for new management.
• Situations where one shareholder might wish to continue carrying on the trade and another shareholder would prefer to exit the business.
• Access to company surplus funds as part of succession planning.
• Situations including where an outside shareholder has initially provided equity finance but now wants the return of that finance.
• A marriage break-up.

Practitioners should apply a holistic approach to the “Trade Benefit Test”, evaluating the future of the company’s viability after the buyback. Revenue guidance states that consideration must always be given to whether or not the proposed manner of funding the buyback will place the company in a weak financial position.

Administration

Where a share buyback is effected and the payment qualifies for the CGT treatment, the company must return details of the share buyback to Revenue by filing a Form AOS1. This form is due to be filed with Revenue nine months after the end of the accounting period in which the buyback occurred. A payment made by a company for the buyback of its own shares is not deductible against profits of the company for tax purposes.

There is no specific Stamp Duty exemption for a redemption or buyback by a company of its own shares. Normally, on the transfer of shares there is a share purchase agreement and a stock transfer form. The stock transfer form would normally be the chargeable instrument for stamp duty purposes. In the case of a buyback, it is normal that the share purchase agreement is relied on to prove the transfer, with no stock transfer form executed and therefore no document on which to levy stamp duty. The shares which are bought back by the company are usually cancelled or held as treasury shares. Therefore, registering new ownership is not usually an issue.

Other Considerations

Once the conditions necessary to apply the CGT treatment have been satisfied, further analysis should be carried out in order to determine what, if any, CGT reliefs might be available to the shareholder e.g. Entrepreneur Relief, Retirement Relief. Such reliefs can provide substantial tax savings for a shareholder. Entrepreneur Relief, for example, can potentially reduce the rate of CGT from 33% to 10%.

In the case of family succession planning, share buybacks can also often play a very effective role. In some circumstances where a child is taking over a company, Business Relief for Capital Acquisitions Tax (CAT) purposes might be available, reducing the taxable value of relevant business property by 90% and therefore reducing an individual’s CAT liability substantially.

How Can We at Company Bureau Help?

We at Company Bureau can provide you with invaluable tax advice surrounding company share buybacks and whether such a transaction would qualify for CGT treatment in your case. Furthermore, in the event that you do not qualify for the CGT treatment, we can advise you on the tax implications that arise when an amount is paid in excess of the original share issue price. If you require assistance in relation to any of the above, we would be delighted to assist you with this. Contact our team through our online contact form here!

Disclaimer: This article is for guidance purposes only. It does not constitute legal or professional advice. No liability is accepted by Company Bureau for any action taken or not taken in reliance on the information set out in this article. Professional or legal advice should be obtained before taking or refraining from any action as a result of this article. Any and all information is subject to change.