674. The capital redemption reserve
(1) In the following circumstances a company must transfer amounts to a reserve, called the “capital redemption reserve”.
(2) Where under this Part shares of a limited company are redeemed or purchased wholly out of the company’s profits, the amount by which the company’s issued share capital is diminished in accordance with-
(a) section 627(b) (on the cancellation of shares redeemed), or
(b) section 646(b)(ii) (on the cancellation of shares purchased),
must be transferred to the capital redemption reserve.
(3) The amount by which a company’s share capital is diminished in accordance with section 670(2) (on the cancellation of shares held as treasury shares) must be transferred to the capital redemption reserve.
(4) The company may use the capital redemption reserve to pay up new shares to be allotted to members as fully paid bonus shares.
(5) Subject to that, the provisions of these Regulations relating to the reduction of a company’s share capital apply as if the capital redemption reserve were part of its paid up share capital.