Tucked away in the detail of the Budget 2025 announcement on 26 November 2025 was a change to the anti-avoidance provisions in relation to share exchanges and company reconstructions, effective for shares or debentures issued on or after the budget date.

The share exchange provisions allow taxpayers to benefit from a deferral of capital gains tax where they receive shares or loan notes instead of cash. This relief is commonly utilised in company disposals where part of the consideration is issued as shares or loan notes in the buyer, group reorganisations including demergers and insertion of holding companies, and ownership succession structuring (management or family buyouts).

What has changed?

Under the previous rules, HMRC could only counteract a transaction if the main purpose of the overall arrangement was to avoid capital gains tax or corporation tax.

The revision to the rules means that HMRC can now seek to counteract individual steps within a wider commercial arrangement, where the main purpose or one of the main purposes of the individual step was to secure a tax advantage.

These changes are a direct response to recent case law, where in Delinian and Wilkinson cases the taxpayers successfully appealed HMRC assessments on the basis that avoidance was not the main purpose of the wider arrangement.

Transitional provisions

Where a clearance application has been made to or granted by HMRC before 26 November 2025, the existing legislation applies and therefore any clearance granted remains valid providing the shares or debentures are issued:

• Within 60 days of 25 November 2025, or
• If later, within 60 days of clearance being granted by HMRC.

Where clearance has been granted and the shares or debentures are not issued within the requisite timeframe, it may be prudent to consider re-applying for clearance from HMRC prior to proceeding with the reconstruction.

What next?

HMRC can now seek to disapply the share for share rules only for the persons who benefit from the tax avoidance element, and “insofar as required.” This replaces the previous “all or nothing” approach, which was based on the main purpose of the restructuring, not the purpose of an individual step.

Early indications are that we can expect more questions from the HMRC clearance unit prior to signing off on clearance applications and therefore time should be built into wider transaction timetables, particularly where transactions are scheduled to complete ahead of changes to Business Asset Disposal Relief on 6 April 2026.

Get in touch 

If you have any questions or would like to discuss this topic further, please reach out to me here, or to your usual Johnston Carmichael contact.