New tax anti-avoidance rules for share reorganisations

Budget 2025 introduced changes to the share reorganisation rules to strengthen the anti-avoidance provisions under which HMRC can deny the “no-disposal” position where shares in one company are exchanged for shares in another. These changes took immediate effect from Budget Day and therefore apply from 26 November 2025.

In this insight, we consider how the new anti-avoidance provisions differ from the predecessor provisions and allow HMRC to take a more granular view of individual taxpayers’ motivations to potentially counteract a greater variety of tax advantages arising from share reorganisations. We also briefly explore what has led to these changes, how taxpayers may continue to utilise the HMRC clearance procedure to obtain certainty in relation to their tax position, and in what circumstances taxpayers may need to explore alternatives such as tax risk insurance solutions.

The pre‑Budget position

Prior to Budget 2025 the operative provisions for the “no disposal” rules were subject to a “main purpose test” which provided that the no disposal fiction would apply (assuming all other conditions were met) where:

“the exchange in question is effected for bona fide commercial reasons and 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.”

A HMRC clearance application process was available to obtain confirmation that HMRC were satisfied that a specific transaction did not fall foul of this phrasing so that the no disposal treatment could apply (provided all other conditions were met).

Anti-avoidance rules introduced in the Budget 2025

With effect from Budget Day 2025 the “main purpose test” has been revised, meaning that HMRC can counteract a tax advantage where:

“… the main purpose, or one of the main purposes, of the arrangements is to reduce or avoid liability to capital gains tax or corporation tax.”

The subtle change to the legislation removes the “bona fide commercial reasons” formulation and solely considers whether the reduction or avoidance of tax was a main purpose.

The new rules also change the way in which HMRC can counteract perceived tax advantages arising from share exchanges. The former rules only provided for a full denial of “no disposal” position whereas the new rules allow for partial counteraction on an individual basis, meaning that HMRC may look at the motivations of each taxpayer individually and allow for counteraction through “just and reasonable” adjustments.

Another important change is the removal of the previous carve-out for persons with a less than a 5% shareholding. Previously the motive of such shareholders was irrelevant as they could not be subject to the “main purpose test” and only needed to meet the mechanical conditions for relief. Under the new rules, any shareholder (however small their shareholding), could be subject to HMRC challenge.

How we got here

Whilst not specifically referenced in the policy paper it is likely that the changes have been implemented following a number of cases in which the old “main purpose” test did not apply where tax planning was imbedded within a large commercial transaction.

Most notably in Delinian Ltd (formerly Euromoney) v HMRC [2023] EWCA Civ 1281 (“Euromoney”), the Court of Appeal upheld tax planning in which a security exchange was implemented in circumstances where a express purpose was the future ability to exempt a gain under the Substantial Shareholding Exemption (“SSE”) by emphasising that the commercial context of the wider arrangements as a whole needed to be considered. Taking a view of the wider commercial context, the wider “arrangements” were commercial in nature and, whilst a specific step had a tax motive, this was not sufficient to trigger the “main purpose test”.

A similar finding was made in Wilkinson v HMRC [2023] UKFTT 695 (TC), following the logic of the Court of Appeal in Euromoney, showing that the tribunals were likely to find against HMRC on arrangements that were fundamentally commercial when viewed as a whole.

Impact on share reorganisations and the clearance process

The clearance process has, fortunately, been retained and it remains possible for taxpayers to seek clearance from HMRC that the “main purpose test” will not apply to a particular transaction.

HMRC had previously updated their guidance following Euromoney to say that, where there was an element of avoidance in a wider commercial structure, then it will not always be “a question that can be answered through the clearance process”. Until the changes in legislation detailed above this would have left certain shareholders in a difficult position where, despite being supported by the findings of the Court of Appeal, HMRC would not give an opinion on the law as it stood when a request for clearance was made. The new rules should hopefully resolve this conflict. However, it should be noted that, with the rules becoming more granular in detail, it is likely that applications for clearance will need to include more detail on each and every part of a wider transaction in order for clearances to be fully considered by HMRC.

In addition, the legislation acknowledged that many transactions may have been subject to clearances granted or applied for prior to Budget Day for which it would be impractical to prepare a revised clearance. A transitional relief was applied for 60 days for clearances submitted prior to Budget Day. With commercial transactions often taking increasing time to complete many such clearances may have expired (those received prior to Budget Day are ineffective after 26 January 2026).

What anti-avoidance rules mean for share reorganisations going forward

The shift from considering the motivations behind a wider transaction to considering individual taxpayers and individual steps represents a significant change. Combined with the removal of the minority carve out, the way in which HMRC can look to partial counteraction and the short transitional period that was afforded to taxpayers, it is likely that:

• A number of taxpayers having submitted clearances before the Budget are now in a position where the clearance submitted will expire prior to completion of a commercial transaction but, if completion of a transaction is imminent, little chance of re-obtaining clearance. This puts taxpayers in a difficult position where there is inherent uncertainty in whether continuing with a transaction could result in a material adverse tax position.
• The process for applying for clearance is likely to become more complex resulting in more detail being required in clearance applications and greater scrutiny from HMRC. This may increase the time required to obtain clearance which can be a sensitive area in fast moving transactions.

The above factors may drive demand for taxpayers to seek alternative solutions to protect their position either through the restructuring and renegotiation of transactions to mitigate tax risk and/or through an increased use of tax risk insurance products to protect against any additional liabilities. Tax risk insurers will need to quickly get to speed with the expected HMRC application of the new “main purpose test” when considering offering insurance as an alternative to the statutory clearance process.

If you would like to discuss how you should approach these tax rules, please get in touch.