The Equity Exchange Vehicle: How to Step Back Without Triggering a Tax Event

The Equity Exchange Vehicle is not a product. It is a mechanism — a specific application of the share exchange provisions in the Taxation of Chargeable Gains Act 1992 — that allows a founder to exchange their shares in a trading company for shares in a new holding company without triggering a capital gains tax event.

Why this matters

A founder who holds shares in a trading company personally and wants to install a holding company above it faces a problem. Transferring shares from personal ownership to a company is a disposal for CGT purposes. If the shares have increased in value — which they have, in almost every case where this structure is relevant — the transfer triggers a CGT charge on the gain.

The EEV mechanism avoids this. Under Section 135 TCGA 1992, where a company issues shares to a person in exchange for shares in another company, and the exchange is for bona fide commercial reasons and not part of a tax avoidance scheme, the exchange is treated as a reorganisation rather than a disposal. No CGT arises at the point of exchange. The base cost of the original shares is carried forward into the new holding company shares.

The conditions

The exchange must be for bona fide commercial reasons. HMRC has a clearance procedure under Section 138 TCGA 1992 that allows the parties to obtain advance confirmation that the exchange qualifies. In practice, most straightforward holding company insertions qualify without difficulty. The commercial reasons are typically: capital retention, governance, succession planning, or preparation for an eventual exit.

The new holding company must end up with more than 25% of the ordinary share capital of the trading company, or the exchange must be part of a general offer to all shareholders. In a typical founder-owned business, this condition is easily met.

The planning opportunity

The EEV is the mechanism that allows a founder to install the Growth and Expansion layers above their trading company without paying CGT to do so. Once the holding company is in place, the SSE qualifying period begins to run. Capital can be retained at the holding company level at 25% rather than extracted personally at 45%. The constitutional architecture can be built above the holding company.

The window for an EEV is open now. It closes the moment a specific buyer approaches or a sale process begins — at that point, HMRC is likely to treat the exchange as part of a tax avoidance scheme and deny clearance. The structure needs to be in place before the exit conversation starts, not as a response to it.