Budget changes tighten rules on corporate reconstructions

Recent Budget announcements signal a tougher tax environment for corporate reconstructions and share exchanges, prompting businesses and advisers to review their existing planning strategies.

Where shareholders exchange shares as part of a reorganisation, tax law has historically allowed any capital gain to be deferred if only shares (and no cash) are received. This prevents tax charges from arising when there is no immediate liquidity. However, changes included in the Finance Bill 2025-26 strengthen HMRC’s ability to challenge when this deferral applies.

The revised rules shift the focus from the exchange itself to the wider arrangements. Relief may be denied if reducing or avoiding tax is one of the main purposes of any part of the transaction, even if the core exchange is commercially driven. Minor steps within an otherwise commercial restructuring could now trigger scrutiny.

Further reforms allow HMRC to partially restrict relief rather than applying an all-or-nothing approach. The removal of the 5% shareholder threshold broadens the scope, capturing more minority and employee shareholders. Clearance applications are also expected to require more detailed explanations of each stage, with a stronger emphasis on commercial justification.

These changes to the anti-avoidance rules apply to share or debenture issues made on or after 26th November 2025. Transitional protections exist for transactions where clearance was submitted before this date: the previous rules may still apply if the exchange completes by 26^th January 2026 or, if later, within 60 days of clearance. Transactions outside these windows will be fully subject to the new rules.

If you are considering a corporate reconstruction or share reorganisation, Verallo’s Tax team can help you assess the impact of these changes and navigate HMRC’s evolving approach. Get in touchto discuss how we can support you.