If you own and run a company, the way you take money out of the business can be just as important as how much you take. The 2026 Budget confirms reforms that could affect capital repayments, company-funded shareholder exits, demergers and payments from overseas companies. 

The Government intends the changes to apply from April 2028, with draft legislation for technical consultation before then. Although there are no immediate changes, for owners planning retirement, family succession or a restructuring, the priority is to understand what future arrangements may need consideration and professional advice. 

The key message for business owners 

The potential reforms are intended to reduce any arrangements that allow accumulated company profits to be taken as capital rather than income. 

Also, there is a recognition that existing rules can obstruct genuine commercial exits and reorganisations. Updated purchase-of-own-shares relief and expanded demerger relief could potentially help in qualifying. However, we do not have any clarity on what the changes and impacts could be. 

What is not changing? 

• The proposed changes do not change dividend Income Tax or Capital Gains Tax (CGT) rates 

• Normal dividends will continue to be taxed as dividend income 

• Disposals of shares to another person or business will remain within the CGT regime. 

Which business decisions could be affected if these proposed changes are implemented? 

Taking accumulated profits out of the company 

Adding a holding company above a trading company, followed by a capital repayment or share buyback may potentially result in a different tax outcome from a direct dividend.  This is an area that HMRC are looking to address with the proposed changes. This is however a very complex area and there is already significant anti-avoidance legislation in place. 

Retirement, succession and shareholder exits 

A company purchase of own shares can help an existing shareholder realise value without requiring the remaining owners to purchase the shares personally. Qualifying buybacks (which are for the benefit of the continuing success of the business), can in very specific circumstances receive Capital Gains Tax treatment. HMRC have announced they want to update the company purchase of own shares relief to (in their opinion), better support genuine exits.  We are interested to see what their draft proposals will be. 

Separating businesses or investments 

A demerger may be relevant where owners want to separate activities, resolve differing priorities or prepare for succession. HMRC intends to expand statutory demerger relief, alongside reforms affecting capital extraction. Any existing restructuring route should therefore be carefully reviewed as part of the whole package rather than treated as automatically protected. 

There are consultations considering extending relief to investment businesses and non-UK resident companies. The implications of this will need to be carefully considered. 

Payments and loans from overseas companies 

The proposals are intended to align the treatment of payments from overseas companies with equivalent UK company payments. They also consider loans and other temporary extractions from overseas companies. If you have an interest in a non-UK company, it is important for you to review both payments and outstanding lending arrangements.   

Unlawful distributions and shareholder loans 

Another area of the proposed reforms is around the interaction between debt, loans and the distributions legislation, including the potential uncertainty where a dividend is later found to be unlawful and repayable.  

Anti-avoidance rules 

The Government also intends to update the capital-extraction anti-avoidance framework, including the Transactions in Securities rules.  

What should owner-managed businesses do now? 

Use the period before the draft legislation to prepare a focused review with your advisers: 

• Identify planned transactions. These can include the addition of new holding companies, capital reductions, share buybacks, demergers and overseas-company payments or loans 

• Clarify your commercial objectives. Consider and record any planned ownership changes, retirement or succession plans, funding needs and timetables 

• Consider arrangements extending beyond April 2028. Do not assume an existing structure or an earlier agreement will be protected before the transitional provisions are known 

• Revisit the plan in 2027 with your advisers. Review the draft legislation, proposed reliefs and transitional provisions before relying on a particular tax outcome. 

Transactions should be assessed on their commercial, legal and tax merits. Accelerating a transaction could create unnecessary cost or risk without securing the expected treatment. 

In summary 

For owner-managed businesses, these reforms are primarily about extracting value from your company, rather than a new headline tax rate. They proposed reforms could restrict some capital extraction arrangements in the future, but potentially they might improve relief for exits and reorganisations. We need to wait and see the outcomes from the draft proposals and the consultation process. 

As always, if you are considering and transaction, such as retirement, succession, a share buyback or a significant restructuring, please do ensure you seek professional advice in advance.