Anti-avoidance changes in the 2025 Autumn Budget

The Autumn Budget 2025, implemented substantial amendments to the anti-avoidance rules that apply when companies reorganise their share capital or engage in share exchanges, share-for-share deals or other forms of company recasts.

The relevant legislation sections 127–139 of the Taxation of Chargeable Gains Act 1992 (TCGA 1992) have been amended so that the “reorganisation relief” (roll-over of gains: no immediate CGT/CT charge when shares are exchanged or company reconstructed), can be denied more broadly.

Specifically, the new law targets situations where a person (individual, company or trust) enters into arrangements in which the main purpose, or one of the main purposes, is to secure a tax advantage they would not ordinarily have. If so, the reorganisation relief will not apply for that person.

Practically, this means that even if a reorganisation or share exchange is part of a larger commercial transaction, if any element is designed to achieve a tax benefit, the favourable rollover treatment may be denied for just those participants.

An important technical change is that the previous carve-out that exempted shareholders with 5% or less of the company from the anti-avoidance rule is being removed.

These changes take immediate effect – i.e. for share or debenture issues made on or after 26 November 2025.

What types of transactions are most affected/what behaviours are being targeted?

The changes are aimed at companies and shareholders involved in:

• Share-for-share exchanges (e.g. mergers, restructure, group reorganisations), including “paper for paper” exchanges that previously benefitted from rollover relief.
• Company reconstructions/corporate reorganisations/group reorganisations, where new share capital is issued or share classes restructured.
• Instances where tax-driven “add-on arrangements” (e.g. side agreements, preference shares, share class structures, or complex group-level engineering) are used to generate a tax advantage, even if the main transaction is commercially legitimate.
• Small shareholders (≤ 5%) – previously exempt, who are now potentially caught by the new anti-avoidance rule.

Practical implications

These changes may have a number of practical consequences for corporate transactions:

• Higher risk when doing restructurings or M&A-style share swaps. Deals that rely on rollover relief (to defer CGT or Corporation Tax) are now riskier: even if the overall transaction is commercial, any tax-driven sub-arrangements may disqualify relief for certain parties.
• Need for careful structuring and documentation. There should be an enhanced review not just of the headline deal, but all ancillary arrangements (e.g. preference shares, side-letters, anti-dilution rights) to assess whether they create a predominant tax motive.
• Clearance process may become more important again. While previously many transactions avoided formal HMRC clearance, the new rules may push taxpayers to seek certainty in advance – especially for complex reorganisations or private-equity deals.
• Uncertainty for small shareholders. Minority shareholders (formerly covered by the ≤ 5% carve-out) now face a risk their share exchange or reorganisation may lose rollover relief, even where the majority shareholders believe the deal is commercial.
• Retrospective planning for pending deals. Entities with ongoing transactions around the 26 November 2025 cut-off date should check whether share issues/debentures will fall within the transitional relief window and if not, whether restructuring should be accelerated or restructured to qualify under the old regime.

Because the change is “targeted” (i.e. it only applies if a tax-advantage motive is found), the compliance and documentation burden and risk of challenge has increased.

Why did the Government make these amends?

• The stated policy aim was to make the tax system fairer: the Government argues the reforms will prevent “abusive” use of rollover relief to avoid tax on gains.
• It arises in part from recent litigation history, notably a case where the old anti-avoidance rules were interpreted narrowly by courts, limiting HMRC’s ability to deny relief where tax avoidance was arguably involved.
• The Government expects these changes to yield additional revenue over time (i.e. increased Capital Gains Tax (CGT) receipts where relief is denied).
• It reflects a trend in tax policy: a shift from trusting “purpose-of-overall transaction” towards greater scrutiny of individual elements (sub-arrangements) of reorganisations deemed to be tax-driven.

What are the practical takeaways from these changes?

• For new deals post budget, a purpose-based review of the transaction structure and any side agreements should be undertaken to gauge whether tax advantage may be deemed “one of the main purposes.”
• Consideration should be taken as to whether formal HMRC clearance should be sought for complex reorganisation or private equity-type transactions.
• Minority shareholders should be aware that they are no longer insulated by prior carve-outs and might face different tax outcomes even if the majority believes the deal is commercial.

In summary, the Autumn Budget 2025 marks a significant tightening of the reorganisation relief rules, shifting the focus firmly onto the purpose behind each element of a transaction. Companies and shareholders will now need to scrutinise their structures more carefully, ensure robust documentation, and be prepared for greater HMRC scrutiny.

As the landscape becomes more complex, particularly for small shareholders and commercially driven deals that include tax-sensitive features, early planning and, where appropriate, seeking HMRC clearance will be key to managing risk and avoiding unexpected tax charges.

How Morr & Co can help?

If you have any questions or would like any further information on the content of this article, please do not hesitate to contact our Corporate & Commercial team on 0333 038 9100 or email info@morrlaw.com and a member of our expert team will get back to you.

Disclaimer
Although correct at the time of publication, the contents of this newsletter/blog are intended for general information purposes only and shall not be deemed to be, or constitute, legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article. Please contact us for the latest legal position.