CG64175 - Business Asset Disposal Relief: rates from April 2025 and from April 2026: anti-forestalling rule: elections under Section 169Q
Source: gov.uk (2025-03-17)


Throughout this manual, all legislative references are to Taxation of Chargeable Gains Act 1992 (https://www.legislation.gov.uk/ukpga/1992/12/contents) (“TCGA92”) unless otherwise stated.

An election can be made under section 169Q (https://www.legislation.gov.uk/ukpga/1992/12/section/169Q) that displaces the normal rule in section 127 (https://www.legislation.gov.uk/ukpga/1992/12/section/127) that a share reorganisation is treated as not involving any disposal of the original shares involved in the reorganisation, see CG64155. Here, reorganisation incudes share exchange that are treated as reorganisations by sections 135 (https://www.legislation.gov.uk/ukpga/1992/12/section/135) and 136 (https://www.legislation.gov.uk/ukpga/1992/12/section/136).

CG10249 (https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg10249) gives an overview of the anti-forestalling rules applying to the various changes to Capital Gains Tax announced at Budget 2024. CG10251 (https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg10251) provides further detail on the rule applying to elections to disapply the share reorganisation rules.

Single company reorganisations occurring before 30 October 2024

Shareholders can arrange for the company to reorganise its share capital in a way that would, absent the relief at section 127 (https://www.legislation.gov.uk/ukpga/1992/12/section/127), constitute a disposal of the shares and an acquisition of new shares. This may involve the cancellation of the existing shares and the issue of new shares or debentures, whether of the same or different classes as the original shares.

This rule applies where a reorganisation within the meaning of section 126 (https://www.legislation.gov.uk/ukpga/1992/12/section/126) takes place on or after 6 April 2023 but before 30 October 2024 and where the individual concerned still meets the qualifying conditions for BADR in respect of their shares in the company on 30 October 2024. That means:
- it is a trading company of the holding company of a trading group,
- it is their “personal company”, and
- they are an employee or office of the company or a company in the same group.
Where the rule applies then gains that accrue because of an election made on or after 30 October 2024 will qualify for BADR by reference to the rate applying at the time of the election.

Example

David and Erin each hold 50% of the ordinary shares in a trading company. Before 30 October 2024 they arrange for the company’s articles to be amended and for it to issue them with B shares that carry similar rights to their existing shares but rank below them in terms of rights to assets in a winding up. The ordinary shares are redesignated as non-voting shares with the right only to a return of par value in a winding up. This is treated as a share reorganisation so they are not treated as disposing of their ordinary shares.

On 20 April 2025 David and Erin elect under section 169Q (https://www.legislation.gov.uk/ukpga/1992/12/section/169Q) to trigger a gain that would qualify for relief. Applying the anti-forestalling rules the rate applying is that at the time of the election.

Single company reorganisations occurring on or after 30 October 2024 but before 6 April 2026

his rule applies where a reorganisation within the meaning of section 126 (https://www.legislation.gov.uk/ukpga/1992/12/section/126) takes place on or after 30 October 2024 but before 6 April 2026 and where the individual concerned still meets the qualifying conditions for BADR in respect of their shares in the company when the election is made.

That means:
- it is a trading company of the holding company of a trading group,
- it is their “personal company”, and
- they are an employee or office of the company or a company in the same group.
Where the rule applies then gains that accrue because of an election made on or after 30 October 2024 will qualify for BADR by reference to a the rate applying at the time of the election.

Exchange of shares and securities occurring before 30 October 2024

The rule applies where an exchange of shares or securities or a company reconstruction within the meaning of sections 135 (https://www.legislation.gov.uk/ukpga/1992/12/section/135) and 136 (https://www.legislation.gov.uk/ukpga/1992/12/section/136) takes place on or after 6 April 2023 but before 30 October 2024 and the election is made after 30 October 2024, or on or after 30 October 2024 but before 6 April 2026 and the election is made after 30 October 2024.

Either Condition A or Condition B must be met for the rule to apply:

Condition A

Applies if either one of these requirements are met:
- those holding shares or securities in ‘company B’ immediately after the exchange are substantially the same as those who held them in ‘company A’; or
- those having control of ‘company B’ immediately after the exchange are substantially the same as those who had control of ‘company A’.
Condition B

Applies if both the following conditions are met:
- those holding shares or securities in ‘company A’ and ‘company B’ respectively hold a greater percentage of the ordinary share capital in ‘company B’ immediately after the exchange than they held in ‘company A’ immediately before the exchange; and
- at any time before the making of the election, the shareholder ceases to meet any of the requirements for BADR relating to personal company, trading status and office holding.
Examples of the operation of similar anti-forestalling rules introduced in line with the 2020 reduction in lifetime limit can be found at CG64173 (https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg64173).

Exchanges of shares and securities occurring on or after 30 October 2024 but before 6 April 2026

The rule applies where an exchange of shares or securities or a company reconstruction within the meaning of sections 135 (https://www.legislation.gov.uk/ukpga/1992/12/section/135) and 136 (https://www.legislation.gov.uk/ukpga/1992/12/section/136) takes place on or after 30 October 2024 but before 6 April 2026 and the election is made on or after 30 October 2024.

This rule is framed slightly differently to that for exchanges before 30 October 2024 but applies in similar circumstances and has broadly the same effect. The key difference is that where the rule applies then the disposal is treated as happening at the time the individual ceased to meet the conditions for BADR, rather than at the time the election is made.

Example

Imran and Asif each hold 50% of the shares in Smaller Ltd, in May 2025 it is acquired by Bigger Ltd. Imran sells his shares for cash while Asif receives less cash but is issued with an 8% holding in Bigger Limited and is appointed as a director. Asif gave half his shares to his daughter in August 2025, at which point he ceased to meet the conditions for BADR. He then makes a section 169Q (https://www.legislation.gov.uk/ukpga/1992/12/section/169Q) election in January 2027. He will be treated as making a disposal of his Smaller Ltd shares in August 2025 rather than at the time he made the election for the purpose of determining the rate of tax and so will be liable to tax at the BADR rate of 14% rather than 18%. Any gain above his available lifetime limit will be charged at the main CGT rates of 18% or 24%.