HMRC has updated its Capital Gains Manual with detailed guidance on revised anti-avoidance rules for share exchanges and company reconstructions, following changes introduced by Finance Act 2026.
UK’s HM Revenue & Customs (HMRC) has published new guidance in its Capital Gains Manual explaining the operation of revised anti-avoidance rules for share exchanges and company reconstructions on 8 June 2026.
The guidance, set out in a new annex titled CG-APP20 – Anti-avoidance rule for share exchanges and company reconstructions from November 2025, replaces most of the provisional guidance previously contained in Appendix 19 and will be incorporated into the main manual in due course. Transitional guidance for clearance applications submitted before the rule change remains in Appendix 19.
The revised provisions affect anti-avoidance rules in the Taxation of Chargeable Gains Act 1992, including
Section 137 on exchanges of shares and debentures and shareholder treatment of company reconstructions, Section 103K covering collective investment scheme exchanges, mergers and reconstructions, and Section 139(5) on business transfers undertaken as part of a scheme of reconstruction.
According to HMRC, the amendments were announced at Budget 2025 and were prompted by court decisions that highlighted limitations in the previous wording of the legislation. Under the revised rule, anti-avoidance measures apply where arrangements relating to an exchange of securities have a main purpose, or one of the main purposes, of reducing or avoiding a capital gains liability.
The guidance notes that the previous legislation focused on the purpose of the share exchange itself and required transactions to fail both a bona fide commercial reasons test and a tax avoidance test before the rule could apply. The revised approach instead focuses on specific arrangements introduced to obtain a tax advantage and aligns the legislation more closely with modern Targeted Anti-Avoidance Rules (TAARs).
HMRC emphasised that the deferral of a charge to tax is not, by itself, tax avoidance. The guidance states that Section 135 is intended to provide tax deferral and that the revised anti-avoidance rule is aimed at arrangements that reduce or eliminate a liability to tax on chargeable gains rather than merely postponing it.
Another change concerns the consequences when the rule applies. Instead of automatically disapplying the share exchange provisions for all shareholders, HMRC will be able to make adjustments on a just and reasonable basis to counteract the tax advantage. The revised framework is intended to target only those shareholders who benefit from avoidance arrangements, replacing the previous broad approach.
The guidance also sets out HMRC’s views on the concepts of “arrangements” and “main purpose”, provides examples of transactions that may trigger the rule, and confirms that certain preparatory corporate restructurings undertaken to access tax-advantaged regimes or reliefs would generally not be regarded as avoidance where they are consistent with the purpose of the relevant legislation.
HMRC said the revised rules are intended to deter and, where necessary, counteract situations in which additional arrangements are inserted into otherwise commercial transactions to reduce or avoid liabilities to tax on chargeable gains.
The changes apply from 26 November 2025 and were legislated in Finance Act 2026.
Earlier, the UK’s Finance (No. 2) Bill 2025-26 was granted Royal Assent on 18 March 2026.
