New HMRC guidance ‘reduces uncertainty’ over tax treatment of share reorganisations

HM Revenue and Customs has released guidance on its interpretation of the revised tax avoidance rules for share reorganisations, which deny tax relief if any arrangements connected to the transaction have a “main purpose of avoiding or reducing tax”.

Companies and individuals can defer tax charges on share reorganisations when undertaking transactions - such as inserting holding companies, share for share exchanges and disposals of shares in return for loan notes. Tax relief was previously denied where the transaction didn’t meet the “bona fide commercial reasons” test. Under new tax rules introduced last November, this test has been replaced by a new targeted anti-avoidance rule (TAAR) that considers each aspect of the transaction and denies tax relief where the main purpose, or one of the main purposes, of an arrangement is to reduce or avoid a tax liability.

The guidance explains that the new rules follow the approach of most modern TAARs and are intended to “deter and, where necessary, counteract situations where additional arrangements have been included in a commercial transaction to reduce or avoid a liability to tax”.

Peter Morley, a tax expert with Pinsent Masons, said the guidance went a long way to reducing uncertainty in the wake of the legislative changes.

“This is particularly the case for private equity transactions where multi‑step reorganisations are common,” he explained.

“The clearer focus on specific arrangements, rather than the overall deal, should make it easier for advisers to assess risk in practice.”

The guidance confirms that the new rules will not apply where the transaction only defers a tax liability. When the new rules were announced in the 2025 Budget, there was concern that routine transactions in a reorganisation leading to a deferral of tax could be considered as having a main purpose of avoiding or reducing tax.

Businesses can apply for a clearance from HMRC that tax relief would be available on a share reorganisation.

“In the context of earn‑outs and deferred consideration, the confirmation that deferral, in itself, is not avoidance is particularly helpful,” said Morley.

“That clarification should give greater confidence that standard commercial structures will continue to fall within the intended scope of the rules.

“The guidance should reduce the need for protective clearance applications on more routine transactions. That has the potential to assist with deal execution, by removing friction and allowing parties to proceed with greater certainty where the commercial rationale is clear.”