When effective tax rates on income from shares were high relative to rates on capital gains (with its annual exemption, etc.) distribution treatment was disadvantageous. Accordingly, a measure of relief was introduced for unquoted companies wishing to purchase their shares.

The purchase will be automatically treated as an ‘exempt distribution’, thus with no need for any claim, where various conditions are satisfied. These, discussed in more detail later, deal with such areas as:

the motive behind the transaction (see ¶762-130);

the residence of the vendor (see ¶762-140);

the length of ownership of the shares concerned (see ¶762-150);

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