Share-for-share exchanges: what is the new anti-avoidance rule?

Share-for-share exchanges are widely used in corporate transactions, including third-party acquisitions where consideration includes shares in the buyer and internal group restructurings.

The November 2025 Budget introduced significant changes to the tax treatment of share-for-share exchanges. The anti-avoidance condition has been tightened. In addition, where the condition is not satisfied because the exchange has a main purpose of avoiding or reducing liability to tax on chargeable gains, HMRC may now make targeted “just and reasonable” adjustments to shareholders’ tax positions.

This revised tax treatment moves away from the former all-or-nothing approach. It may result in different tax outcomes between shareholders, with some taxed immediately on gains that would previously have been rolled over into new shares, and others unaffected.

What has changed?

The key change is a shift in focus from the overall transaction to specific elements of shareholder arrangements. Tax-motivated features affecting only part of a transaction may now trigger the anti-avoidance rule, even where the broader transaction is commercially driven.  Where different forms of consideration are offered to different shareholders – whether cash, loan notes, or shares – HMRC may now counteract any avoidance feature that reduces the capital gains tax (CGT) or corporation tax liability of one shareholder without affecting others.

This is particularly relevant to both corporate group restructurings and to transactions involving mixed or bespoke consideration packages, and shareholders in such arrangements may require separate tax advice.

Under the new rule

• Tax neutrality will not apply if the main purpose, or one of the main purposes, of the arrangements is to reduce or avoid liability to CGT or corporation tax.
• The size of the shareholding is irrelevant. The rule applies to all shareholdings.
• Even an exchange effected for bona fide commercial purposes could be caught if an element of the exchange has a tax avoidance purpose.

The Delinian case context

The change is set against the Court of Appeal’s decision in Delinian Limited (formerly Euromoney Institutional Investor PLC) v HMRC [2023] EWCA Civ 1281.

That case concerned the restructuring of consideration from cash to redeemable preference shares in order to secure the substantial shareholding exemption. The Court held that, on the proper application of the statutory test, the exchange was not tainted as argued by HMRC, having regard to the nature and purpose of the transaction as a whole. The new legislation is intended to address scenarios where particular elements of an arrangement are tax-motivated, even where the wider transaction is commercially driven. For example, HMRC highlights a scenario where a shareholder planning to emigrate from the UK requests (non-QCB) loan notes, while other selling shareholders receive cash consideration. This selective avoidance element could now be addressed under the new rule, even though the broader transaction is commercially driven.

In addition, where tax avoidance is in point, HMRC may now make just and reasonable adjustments to shareholders’ tax positions. This allows HMRC to target the shareholder benefitting from the avoidance feature, while leaving others unaffected.

The reforms represent a shift from assessing the transaction as a whole to examining whether any element of the arrangements has a tax avoidance purpose. HMRC is now able to address specific shareholders rather than applying an all-or-nothing outcome.

Practical implications

The changes create a number of practical considerations for transactions:

• Minority shareholders may require separate tax advice.
• Company clearance under section 138 Taxation of Chargeable Gains Act (“TCGA”) 1992, does not necessarily cover all shareholders.
• Differences in consideration structures should be clearly explained and commercially justified.
• The boundary between tax deferral and tax avoidance is not always clear..
• It is not yet fully settled whether the onus for determining compliance with the anti-avoidance rule falls on HMRC or taxpayers in practice.

Clearance in practice

Under section 138 of the TCGA, only the target company or the acquiring company may apply for clearance. This remains the case.

However, clearance does not necessarily apply to all shareholders under the revised regime, as HMRC may still make targeted adjustments:

• HMRC is expected to scrutinise clearance applications more closely, particularly where different forms of consideration are used. While HMRC must respond within 30 days, it may request additional information.
• Clearance applications should therefore address all relevant shareholder groups and clearly set out the commercial rationale for any differences in treatment.
• Commercial purpose remains important as it is likely to be the principal way of demonstrating that the arrangements do not contain an avoidance feature as one of their main purposes. However, it may not provide the same level of cover or assurance as under the previous regime.

Early tax involvement of tax advisers

Given the increased complexity, early tax input is recommended where transactions involve share or loan note consideration, particularly where different forms of consideration are offered to different shareholders.

If you have any questions on the new legislation, please contact Tax lawyer Michael Fluss.