The company said the method chosen would afford its 275,000 shareholders maximum flexibility in minimising the tax liabilities arising from the buy-back.
The return of capital will take the form of a share consolidation and an issue of new A shares. Investors will receive 43 new ordinary shares and 48 A shares worth 60p for every 48 existing shares.
They will have three choices of what to do with the A shares. They can sell them back to British Energy immediately for 60p, in which case they will receive their money by 13 August and the transaction will be treated as a capital gain.
The second option is to receive a single dividend of 60p on the shares, which will be payable on 6 October and will be treated as income. The shares would then become deferred shares with negligible value.
The third option is to keep the shares, in which case they will pay an annual dividend of 2.25p with the first dividend payment in August next year.
A British Energy spokesman said that the scheme, devised by Hoare Govett, was designed to fulfill the company's pledge to carry out the return of capital in as fair a way as possible to all shareholders.
British Energy has 275,000 small shareholders who own around 20 per cent of the company. "This is the most equitable way of treating all our shareholders by offering them the opportunity to get the best deal under the tax rules whatever their situation," he added.
Sir John Robb, chairman, said that the return of capital would not affect British Energy's financial flexibility or its scope to expand the business.