The Autumn Budget 2025 introduced fundamental changes to the anti-avoidance rules that apply to share exchanges and company reconstructions under the Taxation of Chargeable Gains Act 1992 (TCGA 1992). With effect from 26 November 2025, HMRC has significantly broader powers to challenge transactions that include a tax avoidance element, and the consequences of a successful challenge are now more targeted. These changes, contained in Clauses 37 and 38 of Finance Bill 2025–26, affect anyone involved in selling a business for shares, inserting a holding company, restructuring a corporate group, or carrying out a scheme of reconstruction.
This article explains how the share exchange relief works, what has changed in the anti-avoidance rules, how the revised clearance process operates, and what you should be thinking about if a share exchange or reorganisation is on the horizon.
Note
HMRC’s guidance on the revised rules is currently set out in an interim appendix (CG-APP19) pending Royal Assent of the Finance Bill.
How Does the Share Exchange Relief Work?
When shares in one company are exchanged for shares or loan notes in another, the transaction would normally be treated as a disposal for Capital Gains Tax (CGT) purposes, triggering an immediate tax charge. However, Sections 135 and 136 TCGA 1992 can treat the exchange as though no disposal has taken place. The original shares and the new shares are treated as the same asset. No CGT arises at the point of exchange. Instead, any gain is rolled over into the new shares or securities. Tax is only paid when those new shares are eventually sold. This is sometimes described informally as “rollover” treatment, and it exists because most share exchanges are paper-for-paper transactions where no cash changes hands.
These rules are relevant to a wide range of commercial transactions, including business sales where the buyer issues its own shares as part of the consideration, corporate group reorganisations, demergers, and the insertion of a new holding company above an existing trading company. They are a routine and important part of business restructuring.
For more details on how the relief works, see our guide, "Share for Share Exchange & HMRC Clearance: Tax Relief Guide"
Key point
The share exchange relief defers the gain. It does not exempt it. Tax becomes payable when the new shares are eventually sold. The anti-avoidance rules exist to prevent the relief from being used to achieve more than deferral.
The Anti-Avoidance Rule: What It Said Then and What It Says Now
The rollover treatment described above is not unconditional. It has always been subject to anti-avoidance provisions designed to prevent the relief from being used as part of arrangements whose real purpose is to avoid or reduce tax.
These provisions apply across several reliefs:
Under the rules that applied before 26 November 2025, the anti-avoidance provisions would be triggered where the following conditions were not satisfied:
Two further features shaped how the old rule operated in practice. Shareholders holding 5% or less of any class of shares or debentures in the company being acquired were automatically outside its scope. And if HMRC succeeded in showing that the provision applied, the consequence was all-or-nothing: rollover relief was denied for the entire exchange and every shareholder involved, regardless of whether they had any part in the planning.
From 26 November 2025, the framework is different. The bona fide commercial reasons test has been removed entirely. The anti-avoidance rule now applies where arrangements relating to the exchange or reconstruction have a main purpose, or one of the main purposes, of reducing or avoiding a liability to capital gains tax or corporation tax. The term “arrangements” is defined broadly to include any agreement, understanding, scheme, transaction or series of transactions, whether or not legally enforceable.
The 5% minority shareholder protection has also been removed. And where the rule is triggered, HMRC can now make “just and reasonable” adjustments targeting only those shareholders who sought the advantage, rather than denying the relief outright for everyone. The following section explains each of these changes in detail.
The Six Principal Changes
1. A different approach to “arrangements”
Under the old rules, courts interpreted the “arrangements” broadly. If the exchange sat within a large commercial deal, the entire deal was treated as the relevant arrangements. Because the tax planning was only a small part of that whole, it often did not amount to a “main purpose.” The new test applies to arrangements “relating to” the exchange. HMRC can now focus on the specific steps surrounding the share exchange. A transaction can be entirely commercial in its overall purpose and still face a challenge if it includes a specific arrangement, such as a bespoke share class or a particular form of consideration, designed to create a tax advantage.
2. Bona fide commercial reasons: removed
Under the old rules, the anti-avoidance provision did not apply only if the exchange was carried out for bona fide commercial reasons, and it did not form part of a scheme or arrangements with a main purpose, or one of the main purposes, of avoiding CGT or corporation tax on chargeable gains. That commercial reasons condition has been removed entirely. The sole question now is whether the relevant arrangements have a main purpose of reducing or avoiding a liability to tax on capital gains. HMRC’s interim guidance confirms, however, that mere deferral, which is the intended effect of the share exchange provisions, is not itself treated as avoidance.
3. “Reducing or avoiding”: a broader test
The old wording referred only to “avoidance” of tax. The new wording also catches arrangements whose purpose is to “reduce” a tax liability, widening the scope to capture a broader range of planning outcomes.
4. Wider powers, more proportionate response
The old all-or-nothing consequence sometimes discouraged HMRC from invoking the provision because of the collateral damage to innocent shareholders. HMRC can now make “such adjustments as are just and reasonable” to counteract the reduction or avoidance. In practice, this means HMRC can tax only the specific shareholders who sought a tax advantage, while leaving others unaffected. This modernisation aligns the share exchange rules with the approach taken in most contemporary targeted anti-avoidance rules (TAARs) found elsewhere in the tax code.
CG-APP19: Worked example
Two shareholders hold 40% each in a company being acquired. Employee shareholders hold the remaining 20%. One shareholder asks for payment in loan notes specifically to defer CGT until after emigrating from the UK. HMRC considers the anti-avoidance rule applies to that shareholder’s arrangements. The adjustment is to disapply rollover relief for that shareholder only. The other shareholder and the employee shareholders are unaffected.
5. The 5% safe harbour: removed
Shareholders holding 5% or less were previously automatically outside the scope. That protection has been removed. All shareholders are now within scope if they are part of arrangements with a tax avoidance purpose, including employee shareholders, passive minority investors, and family members with small stakes.
6. Per-person application
The old rules applied to the exchange as a whole. The new rules apply individually to each person who has entered into the relevant arrangements. HMRC’s policy note states that the rule will “only apply to those persons who entered into such arrangements” and “will not apply to persons who did not benefit from the avoidance put in place.”
At a Glance: Old Rules and New Rules
Feature
Before 26 November 2025
From 26 November 2025
Purpose test | Exchange had to be “part of” arrangements with a main avoidance purpose. Purpose of the overall transaction was assessed. | Test applies to arrangements “relating to” the exchange. HMRC can focus on specific steps. |
Commercial reasons | Relief required the exchange to be carried out for bona fide commercial reasons (one of two conditions). | The commercial purpose condition has been removed. The sole question is whether arrangements have a main purpose of reducing or avoiding tax. |
Consequence | “All or nothing.” Relief denied for the entire exchange and all shareholders. | “Just and reasonable” adjustments. HMRC targets only shareholders who sought the advantage. |
Minority shareholders | 5% or less automatically outside scope. | 5% safe harbour removed. All shareholders within scope if part of relevant arrangements. |
Counteraction method | Relief simply disapplied for all parties. | Adjustments via closure notices or discovery assessments. Full or partial disapplication as appropriate. |
Why Did HMRC Change the Rules?
The old wording created a gap. In several recent cases, HMRC attempted to use Section 137 to counteract tax planning incorporated into a larger commercial transaction. The courts held that the “arrangements” were the entire commercial deal, and the tax planning was not a “main purpose” of that whole. HMRC’s interim guidance at CG-APP19 identifies the principal cases: Delinian Limited v HMRC [2023] EWCA Civ 1281 and Olivia Wilkinson & Ors v HMRC [2023] UKFTT 695 (TC). HMRC’s policy note states that the revised rules will “better target those cases where, as part of a commercial exchange or company reconstruction, additional arrangements have been put in place to obtain a tax advantage.”
For a detailed account of how the Tribunal reached its decision in Wilkinson, see our case study, "Wilkinson v HMRC: Smart Tax Planning or Tax Avoidance?"
Do I Need HMRC Clearance?
A statutory clearance can be requested under Section 138 TCGA 1992. It is optional, but it exists so that commercial decisions are not stalled by uncertainty about the anti-avoidance rule. Either the acquiring or the target company can apply with a written application containing full particulars of the operations to be carried out. HMRC must respond within 30 days, or within 30 days of receiving any further information requested.
Two aspects of the clearance process have changed under the new rules:
For a full explanation of the clearance process, see our guide, "Share for Share Exchange & HMRC Clearance: Tax Relief Guide".
Transitional Provisions
Practical Steps: Getting It Right Under the New Rules
The new rules do not prevent businesses from restructuring or selling. The share exchange provisions continue to work as intended for genuine commercial transactions. But they do change the risk profile where a transaction includes elements that could be characterised as tax motivated.
Step 1 - Understand the structure of your deal
The rules are now more targeted, and the analysis is more step-by-step than it was under the old framework. Make sure you understand how the share exchange rules apply to your specific transaction before committing to a structure.
Step 2 - Ask whether each material step has a commercial reason
A transaction can be 100% commercial in its overall purpose and still face a challenge if it includes a specific arrangement designed to create a tax advantage. Under the new rules, the analysis is more targeted, so the steps that drive the tax outcome need to be capable of being justified on their own merits.
Step 3 - Keep records at the time
Contemporaneous documents carry far more weight than recollections after the event. Board minutes, heads of terms, investor communications and adviser correspondence should explain why each step exists.
Step 4 - Consider advance clearance early
Given the wider scope of the new rules and the limited guidance on how HMRC will apply the “just and reasonable” adjustment power, it may be worth seeking clearance for any transaction that includes features which could attract scrutiny.
Frequently Asked Questions
The transaction can still proceed, but HMRC may open an enquiry and apply the anti-avoidance rule through a closure notice or discovery assessment. A refusal can be referred to the First Tier Tribunal within 30 days.
The key date is when the new shares or securities are issued, not when the transaction was agreed. If the issue takes place on or after 26 November 2025, the revised rules apply. The transitional provisions may allow completion under the old rules, but only within the windows set out above.
No. Clearance only confirms that HMRC will not invoke the anti-avoidance rule under Section 137. It does not confirm that the technical conditions for the relief under Section 135 or 136 are met, and it does not cover the wider tax analysis of the transaction.
Conclusion
The changes discussed above are not minor technical amendments. They change the risk profile of share exchange planning and require careful consideration in any transaction involving the issue of new shares or securities on or after 26 November 2025.
Need Help?
Planning a sale, reorganisation, or holding company? Get the structure right from the start.
