UK PLC Insight: Return Of B Share Schemes?

Despite a glut of share buybacks over the last few years, many companies still have strong balance sheets and are looking for ways to return cash to shareholders. For some companies, B Share Schemes may be the answer.

Whilst the last couple of years have seen many UK plcs executing share buybacks - to such an extent that during an 18-month period, FTSE 350 issuers bought back £78bn of shares and the FCA published a multi-firm review - 2026 could be the year that other methods of returning cash to shareholders assume greater prominence.

Next plc's announcement of a B share scheme at the end of last year could be a sign that UK listed companies may look for alternative ways of returning capital than share buybacks.

Next plc's high share price and its requirement for a minimum rate of return for share buybacks meant that it was not able to acquire sufficient shares in the market to complete its cash return aims. Whilst these factors may not be an issue for other companies, limited liquidity is another reason why those with surplus cash may struggle to return cash via a buyback programme.

What is a B Share Scheme?

B share schemes involve the creation of a new unlisted class of shares - usually known as B shares (but there is no magic in the name) - that are issued to shareholders on a pro rata basis. Cash is then returned to shareholders typically by the B shares being redeemed or repurchased by the company out of distributable reserves which produces a taxable capital return.

In order to implement a B share scheme, companies will usually need to seek shareholder authority to (i) amend their articles of association to cater for the B shares; (ii) capitalise reserves; and (iii) allot the B shares to shareholders. As a result, a general meeting and an explanatory circular will be required.

Historically, B share schemes were used by companies wishing to offer shareholders a choice of either income treatment – through paying a dividend on the share - or capital treatment by redeeming the B share. However, changes to tax rules in 2015 meant that this flexibility was removed and now all cash received under B share schemes is treated either as income or, when there is no dividend option, as capital. This reduced flexibility meant that in recent years the popularity of B share schemes has decreased in favour of other methods of returning value, such as special dividends.

For many companies the simplicity of a special dividend (sometimes coupled with a share capital consolidation for instance to ensure comparability of share price data and dividends post return) will still be attractive - for example see Reckitt Benckiser's recent proposed £1.6bn special dividend following the disposal of several of its non-core businesses.

However, for other companies, particularly those with a significant base of retail shareholders for whom a capital receipt and the ability to use CGT allowances may be attractive, a B share scheme might be the answer.

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