The latest Budget introduced substantial changes to the tax treatment of share-for-share exchanges and company reorganisations, changes that were easy to miss but will have a major impact on SME business owners and their advisers.

These transactions, commonly used for succession planning, preparing for investment or improving risk protection, have historically been straightforward. However, the new rules take immediate effect and significantly increase the potential for HMRC scrutiny. The message is clear: restructures that previously carried limited risk now require far more careful handling.

The Strengthened Anti-Avoidance Provision

At the centre of the reform is a tightening of the existing anti-avoidance rules. Previously, shareholders could typically reorganise their corporate structure without triggering an immediate Capital Gains Tax charge, provided the economic ownership remained the same.

Although anti-avoidance provisions already existed, they were mainly reserved for highly aggressive or artificial arrangements.

The new legislation lowers the threshold dramatically. HMRC may now intervene wherever one of the main purposes of the share exchange is to secure a tax advantage, even if the transaction is also commercially justified. This gives HMRC broader discretion to challenge structures that have legitimate business drivers but result in favourable tax outcomes. If HMRC decides the anti-avoidance rules apply, the “no disposal” treatment can be denied and an unexpected CGT liability may arise at the point of exchange, a particularly unwelcome outcome where shareholders receive no cash.

Because the new rules apply immediately, any restructure currently underway, recently initiated or even in the advanced planning stage must be reviewed without delay.

Transitional Relief for Pre-Budget Clearance Applications

The only concession relates to cases where an advance clearance application was submitted before the Budget date. These applications will be protected under transitional rules, but only if the transaction proceeds exactly as described. Even small deviations, such as altered share rights, valuation differences or amended transaction steps, may result in the clearance no longer applying. Anyone who had not lodged their clearance in time now falls strictly under the new and more demanding regime.

Why Advance Clearance Is Now Essential

Advance clearance is no longer simply best practice; it is now an essential safeguard. HMRC’s broadened powers mean that a vague or generalised submission may invite additional questions or outright rejection. Clearance requests must now explain the commercial rationale in detail and demonstrate clearly that securing a tax advantage is not a main driver of the restructure. This requires far more careful articulation than before. Applications will need to anticipate HMRC concerns and provide a well-evidenced explanation of the business needs behind the transaction.

In short, the quality, clarity and depth of the clearance request will now directly influence whether a restructure proceeds smoothly or becomes subject to challenge.

The New 60-Day Completion Deadline

One of the most practical and immediately challenging changes is the new requirement that the share-for-share exchange must be completed within 60 days of HMRC issuing clearance. This is a particularly significant development for legal advisers, who will now need to prepare transaction documents earlier and work to a far more compressed timetable.

Many firms previously waited for HMRC approval before producing the corporate documentation, but this approach is now risky. The new 60-day window means lawyers, accountants and shareholders must be ready to complete the legal steps swiftly once clearance is obtained. Delays caused by shareholder unavailability, changes to valuations, banking formalities or investor negotiations could push the transaction outside the permitted window. If this happens, the clearance could be considered invalid, and the tax risks would re-emerge.

For business owners, this means committing earlier to the chosen structure and avoiding mid-process changes that may require a fresh clearance application. The new rules therefore demand a much more coordinated and efficiently managed process across all advisers involved.

A Higher Standard of Commercial Evidence

HMRC has made it clear that future applications will need to demonstrate strong commercial purpose. Valid rationales may include facilitating investment, supporting succession planning, improving governance through a holding-company structure or separating trading risks from valuable assets such as property or intellectual property. However, generic statements about “flexibility” or “efficiency” are unlikely to satisfy HMRC under the new regime.

The expectation is that advisers will support the stated commercial purpose with clear evidence, often including board minutes, draft investment documents, business plans, legal advice, or risk assessments. The burden of proof has shifted discernibly, and business owners must be prepared to substantiate their reasons with more than high-level explanations.

What Business Owners Should Do Next

For SME owners, the strengthened legislation means restructures can no longer be taken lightly. Any planned transaction should be reviewed immediately to determine whether it may fall within the scope of the new anti-avoidance rules.

Owners should ensure their commercial justification is robust and well documented, and they should involve legal advisers earlier than they may be accustomed to in order to meet the accelerated timetable now required.

The changes will also affect legal project management and transaction logistics. Restructures that once spanned several months may now need to be condensed into a far shorter period to avoid triggering unintended tax liabilities.

A Major Shift Hidden in Plain Sight

Although framed as an anti-avoidance measure, the practical effect of the Budget change is far broader. Many genuine commercial reorganisations will now face greater scrutiny and tighter deadlines. Accountants, tax advisers and corporate lawyers must adjust their processes quickly. Business owners should take specialist advice before making structural changes that could inadvertently fall foul of the new rules.

If you are planning, considering or already progressing a share-for-share exchange or group restructure, now is the time to act.

The new rules create immediate tax and timing risks, but with appropriate planning, these risks can be managed.

Our team can assess your proposed structure, prepare a robust HMRC clearance request and work seamlessly with your legal advisers to ensure completion occurs well within the 60-day timeframe.

Early preparation is now essential. Contact us today to discuss your plans before the new rules impact your restructure.