Introduction
After weeks of public speculation, Rachel Reeves finally delivered her Autumn Statement on 26 November 2026, announcing several important tax changes which will impact millions of people in the UK.
Whilst the introduction of the £2,000 salary sacrifice pension contribution cap, the “Mansion Tax”, and dividend, property and savings income tax increases made the main headlines, several tax-related documents were shared by HMRC in the hours following the Budget speech that contain many important nuances which proves, once again, that the devil is always in the detail.
We’ve aimed to unpick some of this detail to draw attention to some important measures which may have been overlooked.
Share exchanges
Before – anti-avoidance rules around share and security exchanges looked at both commercial purpose and tax avoidance motives, and the exchange was considered ‘in the round’.
After – the anti-avoidance rules have widened in scope to focus less on the commercial purpose of an exchange, and more on any capital gains tax or corporation tax related motivations.
What does it affect?
Where certain conditions are met, the exchange of securities (such as shares or loan notes) in one company for securities of another company is not treated as a disposal for capital gains tax (“CGT”) purposes under a relief often referred to as “Rollover Relief”.
Prior to the Budget, anti-avoidance rules relating to Rollover Relief were in place which negated the above tax neutral treatment where the exchange was not done for commercial purposes and where the main purpose, or one of the main purposes, was the avoidance of CGT or corporation tax.
HMRC advance clearance could (and still can) be sought by shareholders to obtain confirmation that HMRC will not seek to apply this anti-avoidance rule to a specific transaction, based on the facts presented.
What’s changed?
This anti-avoidance rule has been updated to, seemingly, give it a much broader application, as follows:
- Removal of the “commercial purpose” leg of the test – this is a key change which switches focus away from whether there is a commercial driver behind the exchange, and onto whether CGT or corporation tax avoidance was a key motivating factor.
- “Arrangements relating to an exchange” – previously the anti-avoidance rule applied to “the issue of shares […] in exchange for […] shares”, this has now been replaced by “arrangements relating to an exchange” which has broadened the scope into which HMRC may argue that a shareholders’ actions were motivated by an avoidance of CGT or corporation tax. In particular, the new legislation allows HMRC to counteract transactions which have commercial substance but contain terms that are wholly motivated by CGT or corporation tax avoidance. This is no doubt a reaction to the Delinian Ltd Court of Appeal case of 2023, which HMRC lost even though the taxpayer had taken certain steps within the broader transaction that were entirely motivated by corporation tax avoidance (on the basis that the broader transaction was very clearly commercially motivated).
- Removal of the 5% shareholder concession – the anti-avoidance rules previously included a carve-out for shareholders holding no more than 5% of all issued share classes. This carve-out has now been removed, meaning that even shareholders with very small stakes are within the scope of this anti-avoidance rule.
It should be noted that these rules do not apply to exchanges where HMRC advance clearance was sought before Budget Day, has been approved by HMRC, and the share exchange is implemented within 60 days of Budget Day (i.e. by 26 January 2026).
How will this affect you?
Although these updates appear relatively minor in the grand scheme of things, companies and shareholders will no longer be able to rely on the commercial purpose test as a “get out of jail free” card.
The advance clearance process remains available, and we may see this facility used more frequently now that this anti-avoidance provision has more teeth. However, whether the drafting of clearance applications will change remains to be seen, as proving that the main purpose was not to avoid CGT or corporation tax will no doubt continue to focus on the commercial motivations, albeit now we may see more open statements from advisors that a share exchange is being undertaken with a view to avoiding other taxes, such as inheritance tax (i.e. the removal of the reference to ‘commercial reasons’ arguably means that non-commercial reasons carry additional weight, even where those non-commercial reasons relate to tax avoidance where the tax being avoided is one other than CGT and corporation tax). It will be interesting to see if we also see more clearance rejections from HMRC, even in cases where there are strong commercial drivers underpinning the proposed transactions.
Changes to Business Relief and Agricultural Relief
Before – Business Relief and Agricultural Relief were uncapped IHT reliefs, reducing the charge to IHT to £nil on a transfer of a qualifying business interest or agricultural property.
After – Business Relief and Agricultural Relief at 100% will be capped at £1m of value (combined) from 6 April 2026, with the excess receiving relief at 50%. The £1m allowance, which applies per taxpayer, has been confirmed to be transferrable between spouses on death, and any IHT can be paid over a 10-year period interest-free.
What does it affect?
The changes to Business Relief (“BR”) and Agricultural Relief (“AR”) announced by Rachel Reeves in last year’s Autumn Statement have been the source of much discontent amongst the public and tax advisers alike.
For many years, BR and AR gave individuals 100% inheritance tax relief (uncapped) where the asset being transferred was a specific category of business or agricultural property. In October 2024, it was announced that from 6 April 2026, a cap of £1m of value would be introduced on which 100% IHT relief would continue to apply. Any value transferred (in an IHT context) in excess of this threshold would only receive 50% IHT relief.
What’s changed?
In the last year, there has been a lot of debate and speculation as to whether the Government would make any changes to this reform. Finally, on Wednesday, it was confirmed to be going ahead as planned. However, there are two notable features:
- On death of a spouse or civil partner, any unused £1m allowance can now be passed to the surviving individual to increase their allowance to up to £2m on which 100% IHT relief will be available.
- There will be an option to pay the IHT due in equal instalments over 10 years interest-free, where the IHT due arises from business or agricultural property (this was discussed last year, but has now been confirmed).
How will this affect you?
Whilst still not an ideal outcome for individuals who hold business or agricultural property, these clarification points may allow them to better manage the financial burden on the transfer of businesses or farms.
It should be noted that the £1m allowance is “recharged” every seven years for an individual. This means that whilst the passing of unused allowance on death is a beneficial tool, the introduction of this allowance is likely to lead to more tax planning and complex structuring in advance of someone’s death to make best use of the £1m allowances (and other IHT reliefs) in their lifetime.
Temporary non-residence rules on post-departure trade profits
Before – Dividends paid out of post-departure trade profits did not fall within the temporary non-residence rules.
After – Dividends paid out of post-departure trade profits now fall within the temporary non-residence rules.
What does this affect?
The temporary non-residence (“TNR”) rules are anti-avoidance provisions that seek to stop people leaving the UK and becoming non-resident, realising some value whilst overseas, and then returning to the UK in relatively short order. The TNR rules effectively state that if an individual left the UK, and in their period of non-residence they realised certain income or gains, they will be taxed on those income or gains in the UK if they resume UK tax residence in the period of 5 years following the start of their period of non-residence.
Previously, there was a specific carve out from the TNR rules for dividends received from a UK close company by a non-resident UK leaver where that dividend was sourced from profits arising in the relevant company after the individual had ceased UK tax residence.
What’s changed?
This concession has been removed by the Government, and such dividends will now fall squarely within the TNR rules such that they will now be taxable if the non-resident individual returns to the UK within the relevant 5-year period.
In addition, there are now some more complex anti-avoidance rules which seek to counteract planning around these rules which involves loans and/or the payment of dividends to other persons.
How will this affect you?
This is in our view a fair change by the government as it will stop individuals from leaving the UK for one year, extracting significant profit from that year by way of dividend without being subject to UK income tax, and then returning to the UK. It also simplifies this anti-avoidance provision, as there was always subjectivity in determining which year's profits a dividend related to.
However, whether these changes go far enough is another question. Employment income still does not come under the TNR rules, so currently a business owner could feasibly leave the UK for a year and pay themselves a significant salary for the period in which they are overseas. If the owner carries out all their work overseas in that year, then they may pay no UK income tax on the salary that they receive, even if they return to the UK the following year.
Employee Ownership Trusts (EOTs)
Before – the capital gain arising on disposal of a controlling shareholding in a trading company to an EOT was wholly exempt from capital gains tax.
After – 50% of the capital gain arising on disposal of a controlling shareholding in a trading company to an EOT is now chargeable to capital gains tax.
What does this affect?
Where the right circumstances for the sale of a controlling shareholding in a trading company to an Employee Ownership Trust (“EOT”) arise, this provides business owners with a (potentially long-awaited) liquidity event and also allows them to begin the process of passing on their business to employees of the business.
The headline tax benefit of selling into EOTs prior to the Budget has been that, where certain conditions are met (and continue to be met in the future), any capital gain arising on the disposal was fully exempt from CGT.
What’s changed?
After significant consultation into EOTs last year, the Government have now announced the removal of the 100% capital gains tax relief on the sale of shares by an individual to an EOT, instead replacing this with a 50% capital gains tax relief with effect from 26 November 2025. What this means in practice is that, instead of paying no CGT on a disposal of shares to an EOT, a business owner will pay CGT at an effective rate of 12%.
The draft legislation released by the Government has also clarified that the 50% gain that now becomes chargeable to CGT is not a ‘qualifying gain’ for the purposes of a relief known as Business Asset Disposal Relief (formerly Entrepreneurs’ Relief) which reduces the rate of CGT to 14% (rising to 18% from 6 April 2026) for the first £1m of chargeable gains.
How will this affect you?
The above change may dissuade some business owners from selling their business to an EOT. Another reason why this could reduce the number of EOTs we see in practice is that business owners may now be subject to (partly) unfunded upfront tax charges. Usually, the consideration for the shares on a sale to an EOT is structured as a relatively small proportion of upfront cash with the remaining consideration left outstanding and payable over several years.
From a tax perspective, both the upfront cash and deferred consideration are taxable on day one, which means that 12% of the total consideration will be due for payment by a selling shareholder by 31 January following the tax year of disposal. From a practical sense, the seller may have issues paying the upfront tax charge as, by 31 January following the end of the tax year, all they will have received is their upfront cash, and, in some scenarios, a relatively small tranche of the deferred cash consideration. This may mean that sellers have to wait up to two years to actually see true liquidity from their business sale.
Whilst the reduction in relief is stark, the 12% effective tax rate is clearly still attractive. Therefore, in the right circumstances, an EOT may still provide a business owner with a good way of passing on the business whilst realising their investment. It’s also fair to say that, in a lot of EOT exits, the capital gains tax exemption is not always the driver.
Other small changes you may have missed
- EMI thresholds increased – the thresholds for EMI-eligible companies have increased. The maximum employee limit has increased from 250 to 500, the maximum gross assets the company can hold at grant will increase from £30m to £120m, and the maximum value of EMI options that can be granted will increase from £3m to £6m. This change will make EMI an appealing prospect for both start-up and scale-up companies and open it up to some companies that would have been ineligible under the previous thresholds.
- Income tax relief on VCT investments – whilst the ability for companies to raise finance through VCT investments is being improved, the income tax relief for investors will be decreasing from 30% to 20% from 6 April 2026.
- Gift Relief – the Government are undertaking a technical consultation to review the chargeable asset formula which restricts Gift Relief claims (this being a relief from CGT in respect of the gift of certain business assets). This consultation will review whether the formula should be extended to include assets such as newly generated goodwill (post-2002). The omission of this key asset has led to significant restrictions on Gift Relief claims for shares in businesses whose value is significantly derived from its goodwill. A review of this issue has been lobbied for in the past to no avail, but this consultation will be seen as good news for people looking to pass on part of their family business in a landscape on which many tax restrictions have been imposed.
- Other IHT anti-avoidance rules – the Government introduced a niche anti-avoidance rule to stop settlors of a relevant property trust avoiding an IHT exit charge when they cease to become a long-term UK resident. Whilst these rules are unlikely to affect many, it could be indicative of the Government’s direction of travel in respect of IHT and situs of assets which could be extended to include individuals.