Important tax changes to tax planning – HMRC consultation now closed

HMRC launched a consultation earlier this year, which we have been monitoring with close interest. It is possible it could significantly change how company owners take money out of their businesses tax-efficiently in certain circumstances.

By Philip Kinzett-Evans – Tax Director

What every business owner needs to know about a new government consultation

The consultation ran until 14 September 2026, and while it was “just” a consultation, for now it signals a clear intention to shut down some well-established tax planning strategies. If your business has ever restructured to take out a large lump sum, split into separate companies, or borrowed money from an overseas company you control, this affects you.

What’s actually changing?

 The “insert a new company on top” tax planning route is being closed down

Here’s the situation today: if you own a company that’s grown in value, one-way advisers have helped owners take out a large sum of cash while paying less tax is to set up a new holding company above the existing one. Through some technical share-swapping, this resets what counts as your “original investment” in the business to today’s market value — even though you haven’t actually put any new money in. That, in turn, means when you later take cash out, much more of it is treated as a tax-free return of your own investment, and only a smaller slice gets taxed — and often at the lower capital gains tax rate rather than income tax.

The government wants to stop this. Their proposal would essentially treat you as if you’d never set up the new company at all — locking in your original investment amount, however long ago that was and however small it was. In practice, this would make the whole strategy pointless for most people, and any large withdrawal would end up taxed much more like a dividend (at higher income tax rates).

 Splitting a business into two companies (a “demerger”) gets harder — unless you qualify for the official route

Similarly, many business owners have split a company into two separate businesses (for example, when business partners want to go their separate ways, or to separate different trades) using informal restructuring methods that rely on the same trick described above. Once that trick is closed off, this informal route stops working too.

The good news: the government says it wants to make the official, HMRC-approved way of doing a demerger easier to use, with more relaxed rules. The catch: those relaxed rules aren’t in place yet, and there could be a gap where the old flexible approach no longer works but the new, easier official process isn’t ready yet either.

Money from overseas companies will be taxed more like money from UK companies

At the moment, payments from companies based outside the UK often get more favourable tax treatment than the same payment would get from a UK company. The government wants to level this playing field, meaning UK residents receiving money from overseas companies they own, or control, should expect to pay more tax going forward.

Borrowing from your own overseas company may start costing you tax

If you personally own a company and borrow money from it, there are already rules that create a tax cost for doing this (designed to stop people using company loans as a tax-free way of accessing cash). Currently, this doesn’t apply if the company is based overseas. The government is looking at closing this gap too, meaning loans from an overseas company you control could soon come with a similar tax cost.

Selling shares back to your own company (“company buybacks”) will follow clearer, but stricter, rules

Right now, if you want to leave a company and have it buy back your shares in a tax-efficient way, you need to satisfy a fairly subjective test about whether it benefits the company’s trade — which often leads to arguments with HMRC. The government wants to replace this with clearer, fixed rules — but they’re also proposing to make the actual requirements stricter, including:

• You must have owned at least 5% of the company and worked there for two years (five years if you’re related to the remaining owners)
• You must give up your entire shareholding and any directorship — no keeping a token stake
• If you come back as a shareholder or director within five years, the tax benefit gets clawed back

Why this matters to you

• If you’re planning to take a large sum out of your company using a holding company restructure, this route is likely to close, probably with no advance warning beyond this consultation period. Any such plans should be reviewed urgently.
• If you’re planning to split your company into two, and you don’t clearly qualify for the official HMRC demerger process, you may find yourself with no good options for a while, until the rules are updated. It’s worth checking now whether your plans would meet the official criteria.
• If you or your family are planning your exit or succession from a family business, the stricter buyback rules (particularly the longer holding periods for family members and the five-year “no coming back” rule) could affect how you time your departure.
• If you have money tied up in, or loans from, an overseas company you control, you should get a sense of what the tax cost might look like under the new rules, so there are no nasty surprises.

Timing is tricky. The consultation has closed and we do not yet have HMRC’s own feedback. Actual draft legislation will take longer still.

That creates a real dilemma: act now while the old rules still apply (with the risk that the government could backdate changes to catch last-minute transactions), or wait for clarity (with the risk that the door closes before you’re ready).

This is exactly the kind of decision worth talking through with us rather than guessing.

 What you should do now

•  Get in touch if you have any of the above in progress or being considered — a capital extraction, a company split, a share buyback, or a loan from an overseas company. We can review your specific situation and talk through the options while there’s still time to act.
• Don’t rely on old advice or old plans without checking them again — anything based on the current rules may need to be revisited.
• Let us know if you’d like your voice heard — businesses and individuals can respond to the consultation directly, and we’re happy to help put together a response reflecting your circumstances.

Want to talk this through? Contact your usual adviser at the firm to arrange a review of your position before these changes take effect.