UK and International Tax news

HMRC Issues Guidance on Changes to Share Exchange and Reorganisation Rules

Wednesday 17th June 2026

HMRC has issued guidance on changes to the anti avoidance rules for share exchanges and company reorganisations, now included in FA 2026, which apply as from 26 November 2025.

The capital gains share reorganisation rules in s.127 – 139 TCGA92 generally apply where a company’s share capital is reorganised and are extended to where shares are issued to a person in exchange for shares in another company or its share capital is reconstructed. These are usually ‘paper for paper’ transactions where no cash has been paid. In such transactions the reorganisation rules provide that there is no immediate charge to CGT or corporation tax on the shareholders. Instead, any gain is rolled over into the new shares.

The FA 2026 changes amend the existing avoidance rules by removing the bona fide commercial reasons condition and ensure that they apply to those persons who have entered into arrangements where the main purpose, or one of the main purposes, of the arrangement is to secure a tax advantage that they would not ordinarily have been entitled to.

HMRC has previously confirmed that deferral of a charge to tax is not, of itself, tax avoidance, as the purpose of s.135 is to provide deferral and the anti-avoidance rule has to be viewed in that light. HMRC will have regard to the established case law on anti-avoidance rules such as the case when considering whether counteraction is warranted.

The previous wording of the anti-avoidance rule meant that it did not apply where a share exchange was effected for bona fide commercial reasons and did not form part of a scheme or arrangements of which the main purpose, or one of the main purposes, was avoidance of liability to CGT or CT.

The revised rule now applies where there are arrangements that relate to an exchange of securities, and the main purpose, or one of the main purposes, of the arrangements is to reduce or avoid a capital gains liability.  Only the shareholders obtaining a tax advantage will be affected and holders of 5% or less of any class of securities in the original company are no longer outside the scope of the rule.

The reason for the change is that in the Delinian [formerly Euromoney] case, the Court of Appeal confirmed that the previous wording focussed on the purposes of the exchange itself, finding that the exchange was not part of a scheme or arrangement to avoid tax and that even where tax avoidance arrangements are present, they may not be sufficient to amount to a main purpose.  HMRC suggest the revised wording puts the focus of the purpose test on the particular arrangements that are put in place to avoid tax.  It also follows the approach of most modern TAARs which also dispense with a bona fide commercial reasons condition.

The changes to the rule are intended to deter and, where necessary, counteract, situations where additional arrangements such as the use of loan notes in certain situations have been included in a commercial transaction in order to reduce or avoid a liability to tax on chargeable gains.

HMRC does not consider that the rule would apply where a business is restructured so that a share sale will qualify for a relief or exemption should a sale take place after the relevant qualifying conditions for that relief have been met throughout the relevant period following the restructuring.  This would include for example separating investment and trading activities with a view to any future sale of shares in a trading company qualifying for the substantial shareholding exemption or separating commercial properties before transfer to a REIT.

This contrasts with situations where a proposed commercial transaction would not meet the conditions for such a relief at the time of the transaction, where a type of security is included in the exchange or scheme of reconstruction with the purpose of reducing or avoiding a liability to tax on capital gains.

Given the changes to the anti avoidance provisions, where there is uncertainty whether additional steps included in a share exchange or reorganisation are arrangements with a main purpose of avoiding or reducing CGT, it may be appropriate to seek advance clearance from HMRC.

If you would like more details on the above, please contact Keith Rushen on 0207 486 2378.

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