While the Chancellor’s Autumn Budget may seem like a distance memory, the changes to HMRC’s Capital Gains Manual at CG-APP19 effect how and when the long-standing “no disposal” treatment for qualifying exchanges may be denied.
Although the guidance is interim and will be updated once the legislation receives Royal Assent, it gives important insight into HMRC’s intended approach and compliance expectations.
Share exchanges and reconstructions are a common feature of commercial reorganisations, enabling shareholders to restructure ownership without triggering an immediate capital gains tax charge. However, where such transactions are used as part of arrangements designed to avoid or reduce tax, specific statutory anti-avoidance rules can apply. CG-APP19 explains how those rules have been modernised and, in some respects, widened.
The revised anti-avoidance test
Historically, the anti-avoidance rule in section 137 of the Taxation of Chargeable Gains Act 1992 focused on whether a share exchange or reconstruction was carried out for “bona fide commercial reasons” and not as part of a scheme with a main purpose of avoiding tax. This dual test created complexity and uncertainty, particularly in transactions that were commercially driven overall but included elements of tax planning.
Under the revised approach outlined in CG-APP19, the emphasis is now firmly on the purpose of the arrangements rather than the commerciality of the transaction as a whole. The key question is whether the arrangements surrounding the exchange have a main purpose of reducing or avoiding a charge to capital gains tax or corporation tax. If so, the anti-avoidance rule can apply even where the exchange itself would otherwise qualify for no-disposal treatment.
This aligns the rule more closely with modern targeted anti-avoidance rules (TAARs) used elsewhere in the tax code. Importantly, HMRC confirms that mere tax deferral, which is the intended effect of genuine share exchange provisions, is not, by itself, regarded as avoidance. The focus is on arrangements that go beyond deferral and seek to eliminate or materially reduce a tax charge that would otherwise arise.
The revised rule applies to exchanges where new securities were issued on or after 26 November 2025. It covers not only straightforward share-for-share exchanges but also reconstructions and similar transactions falling within the broader exchange provisions of the capital gains legislation.
Consequences of the rule applying and targeted counteraction
One of the most notable changes highlighted in CG-APP19 is how HMRC may respond where the anti-avoidance rule applies. Under the previous framework, if the rule was triggered, the entire exchange could lose no-disposal treatment, potentially affecting all shareholders regardless of their involvement in the avoidance arrangements.
The revised rule allows HMRC to act in a more targeted and proportionate way. Where arrangements are designed to secure a tax advantage for particular shareholders, HMRC may counteract that advantage on a “just and reasonable” basis, without necessarily denying relief to other shareholders who are not benefiting from the avoidance.
This is particularly relevant in transactions involving multiple shareholders with differing objectives. For example, if only certain individuals structure their consideration in a way intended to avoid capital gains tax, such as through specific types of loan notes or exit planning, HMRC may focus its counteraction on those individuals rather than the transaction as a whole.
The guidance also notes that previous thresholds, such as minority shareholdings falling outside scope, no longer provide automatic protection. The emphasis is now on who benefits from the arrangements and whether a tax advantage is being sought.
Clearances, transitional rules and practical implications
CG-APP19 also addresses how HMRC will handle statutory clearance applications during the transition from the old rules to the revised regime. Where a clearance application was submitted before 26 November 2025 and approved under the previous legislation, that clearance will generally remain valid provided the transaction completes within the permitted timeframe, typically 60 days from HMRC’s response.
However, applications made after this date, or transactions that are delayed or materially altered, will be assessed under the revised anti-avoidance rule. HMRC makes clear that changes to the structure or terms of a transaction following clearance may invalidate that clearance and require a fresh application.
From a practical perspective, the guidance underlines the importance of careful planning and documentation. Taxpayers and advisers should be prepared to demonstrate that any arrangements surrounding a share exchange are not driven by a main purpose of avoiding tax. While legitimate commercial reorganisations remain fully supported by the legislation, HMRC’s ability to isolate and counteract perceived avoidance has been strengthened.
If you have any queries or concerns on the matter, please reach out and speak to one of our experts.
