What were the budget changes to company reconstructions all about?
28th November 2025
Posted in Articles by Andrew Marr
On Wednesday, many of you may not have noticed a few changes to anti-avoidance rules relating to company reconstructions, but they were there and are in force now. These mainly concern the kind of transactions where shares are exchanged for other shares and a shareholder hopes that the disposal can be ignored, so that the new shares ‘stand in the shoes’ of the old shares. The quick message is that the new rules apparently make it easier for HMRC to refuse clearances in respect of share for share exchanges and company reorganisations. The old mantra that something will ‘be OK’ if it is ‘effected for bona fide commercial purposes 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’ has been tweaked in the budget.
In more detail
The new rules now apply restrictions to ‘share for share’ reliefs if ‘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’ and where previously the effect of falling foul of the rules was ‘all or nothing’ now HMRC has the power to make ‘adjustments’ to counteract any advantage. If you are struggling to see why the new wording is wider, then you are not alone and I am hoping that the main thrust of the change is to allow HMRC to counteract relatively small tax advantages which would not, in themselves, be significant enough to have countered ‘share for share’ treatment under the previous rules.
The case of Wilkinson
This 2023 case involved taxpayers winning an argument with HMRC about whether the ‘share for share’ rules should apply. Broadly, things were structured so that three daughters could each benefit from £10m of Entrepreneurs’ Relief at 10%. This only worked by them receiving shares and loan notes on a sale after their parents had gifted them shares shortly before the transaction. HMRC lost because it was decided that the main purpose of the transaction was a third-party sale of a company for £130m and the tax advantages enjoyed by the daughters were subsidiary to this planning. There have been some early suggestions doing the rounds that this case (and also the ‘Euromoney’ case decided along similar lines) prompted the change in legislation. I can see this because now it is ‘the arrangements’ that need to have a main tax avoidance motive, whereas previously, the tax avoidance motive needed to apply to the whole ‘scheme or arrangements’.
Transitional rules
If clearance for a transaction had already been requested (under the old rules) before 26 November 2025 then it will stand if the transaction is enacted by 25 January 2026 or (if later) before 60 days after the date that HMRC provided clearance notification. This means that, for many, it will be a race to complete reorganisations before 26 January 2026. This will be eminently achievable for simple transactions but not so much for the more complicated ones. If there is any doubt about achieving the deadline, then it may be a good idea to forward your previously accepted clearance to HMRC and ask for their blessing under the new rules. Those who are awaiting clearance from HMRC under the old rules may want to get the lawyers on the case with the legals now, in the hope that clearance will be granted and so they can steal a march on the deadline.
Forbes Dawson view
We would tentatively suggest that this change in legislation is not as worrying as it first seemed. Its main aim seems to be to give HMRC latitude to counteract tax results where some ‘clever planning’ has been used (such as in the Wilkinson case where the rules were used to artificially defer the tax liability for the children). A few commentators have feared that this may be used to deny clearance in cases where personal holding companies are inserted above the shares in the main trading or investment company (a way often used to allow different shareholders to safeguard their share of profits in a company and delay income tax until dividends are declared by the holding company). I do not see how the new rules are any different from the old rules in these kinds of scenarios. We may be wrong here, and the proof will be in whether HMRC materially changes its stance in relation to how they deal with clearances. It may be a good idea to get clearances in quickly before any undesirable new philosophy has time to bed-in at HMRC.
