Budget update: company reorganisations and reconstructions and the anti-avoidance rules

Joshua Hobson, Solicitor

The Finance Bill 2025-26 introduces important changes to the anti-avoidance provisions governing share exchanges and company reconstructions. These changes apply to transactions involving the issue of shares or debentures on or after 26 November 2025. Businesses planning reorganisations (including were tax clearance has already been granted by HMRC) should review these updates carefully with their tax advisers.

Key Changes

1. Commercial Purpose Test Removed
   Previously, relief under the reorganisation rules required the transaction to be carried out for bona fide commercial reasons and not for tax avoidance. This test has now been abolished. The focus is no longer on proving commerciality but on whether arrangements aim to secure a tax advantage by reducing or avoiding liability to capital gains tax or corporation tax.
2. 5% De Minimis Threshold Removed
   The old exemption for minority shareholders (holding less than 5% of the share capital in the relevant company) has been removed. This means all shareholders, regardless of size, can fall within the scope of the anti-avoidance rules.
3. Introduction of “Just and Reasonable” Counteraction
   Instead of denying relief entirely, HMRC now has the power to make a “just and reasonable” adjustment to counteract any tax advantage. This is a more proportionate approach and avoids the previous “all or nothing” outcome where clearance is either granted or not granted.

Transitional Rules

If you have already submitted a clearance application before 26 November 2025, the old rules still apply provided the transaction completes by 25 January 2026 or, if later, within 60 days of HMRC’s clearance notification.

You should establish with your tax adviser whether it’s best to seek to complete your transaction on the basis of the old rules within these timescales or to submit an application to HMRC to ask for clearance under the new rules.