Revised Approach to Corporate Reconstructions
The Finance Bill 2025-26 includes updates to anti-avoidance rules for share exchanges announced in the Autumn Budget 2025. Here at Fiander ETL, we wish to highlight the situations affected, what the changes are, why they occurred, and their practical implications.
Situations Impacted
Capital gains share reorganisation rules (section 127 and 139 in TCGA 1992) apply where a company’s share capital is reorganised and where shares are issued to an individual in exchange for shares in another company.
These are usually paper for paper transactions, where no cash has been paid, and as such the reorganisation rules provide there is no immediate charge to Capital Gains Tax (CGT) or Corporation Tax (CT) on shareholders. Instead, any gain is rolled over until into the new shares.
Any rolled over gain needs to meet certain anti-avoidance provisions included within the legislation (section 137(1), 139(5) in TCGA 1992) and a clearance procedure (section 138 TCGA 1992).It is these provisions which have been changed in the legislation.
These are usually paper for paper transactions, where no cash has been paid, and as such the reorganisation rules provide there is no immediate charge to Capital Gains Tax (CGT) or Corporation Tax (CT) on shareholders. Instead, any gain is rolled over until into the new shares.
Any rolled over gain needs to meet certain anti-avoidance provisions included within the legislation (section 137(1), 139(5) in TCGA 1992) and a clearance procedure (section 138 TCGA 1992).It is these provisions which have been changed in the legislation.
Previous Legislation
Anti-avoidance provisions for such a transaction previously required:
- The exchange or reconstruction is carried out for “bona fide commercial reasons”
- The exchange or reconstruction “does not form part of a scheme or arrangements of which the main purpose, or one of the main purposes, is avoidance of liability to capital gains tax or corporation tax
What has changed:
Amendments now apply to reorganisations so that the anti-avoidance rules now apply to those cases where the main purpose, or one of the main purposes, of the arrangement was to secure them a tax advantage. Where this outcome is satisfied, the reorganisation provisions will not apply. The change sounds subtle but means that only part of the reconstruction now needs to have its purpose to secure a tax advantage whereas previously the whole reconstruction had to have a tax advantage as the main or a primary purpose
Other changes include:
Other changes include:
- Tax Clearances – HMRC can deny relief in part on a Tax Clearance, a shift from the all or nothing approach.
- Minorities – shareholders with an interest below 5% have become within the scope of anti-avoidance.
Why has this changed:
The revision means the rules will now be able to target cases where additional arrangements have been put in place to obtain a tax advantage. Commercially driven deals are at risk of losing some of the relief if any aspect has a tax advantage motive.
The theme for HMRC is substance over form: now examining every element of an arrangement for tax advantaged components, not just the main transaction.
The theme for HMRC is substance over form: now examining every element of an arrangement for tax advantaged components, not just the main transaction.
Practical Implications:
- Tax clearances from HMRC are anticipated to require additional processing time.
- Each step will require more documentation, stronger justifications and more rigorous analysis as more scrutiny is placed on the Tax Clearance.
- Minority interests (below 5%) may need to take extra advice.
- Structures that were previously approved may no longer receive approval.
- Typical restructure scenarios are now more exposed.
Next Steps
The changes become law once the Finance Bill 2025-26 receives Royal Assent, with potential amendments made on its way through Parliament.
Changes will apply from 26th November 2025, subject to transitional arrangements where clearance applications were submitted pre-budget
Should you be considering options for restructuring, please reach out to Fiander ETL for guidance.
Changes will apply from 26th November 2025, subject to transitional arrangements where clearance applications were submitted pre-budget
Should you be considering options for restructuring, please reach out to Fiander ETL for guidance.
