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Gift Hold-Over Relief
Gift Hold-Over Relief is a valuable Capital Gains Tax relief that lets you defer tax when giving away certain business assets or shares. Instead of paying Capital Gains Tax at the time of the gift, the tax liability passes to the person receiving the asset — they'll pay the ta...
Introduction
Gift Hold-Over Relief is a valuable Capital Gains Tax relief that lets you defer tax when giving away certain business assets or shares. Instead of paying Capital Gains Tax at the time of the gift, the tax liability passes to the person receiving the asset — they'll pay the tax when they eventually sell or dispose of it.
What is Gift Hold-Over Relief?
When you give away or sell an asset for less than it's worth, you normally have to pay Capital Gains Tax on any gain you've made. Gift Hold-Over Relief changes this by allowing you to "hold over" the tax bill.
Under this relief:
- You don't pay Capital Gains Tax when you give away qualifying assets
- The recipient takes on the tax liability and will pay Capital Gains Tax (if due) when they later sell or dispose of the assets
This relief doesn't apply to gifts between spouses, civil partners, or to charities — these transfers are already exempt from Capital Gains Tax under separate rules.
Who can claim Gift Hold-Over Relief?
The conditions you must meet depend on whether you're giving away business assets or shares in a company.
Giving away business assets
You can claim the relief if you:
- Are a sole trader or business partner, or
- Hold at least 5% of voting rights in a company (known as your 'personal company')
The assets must be used in your business or personal company. If you only use the assets partly for business purposes, you can usually claim partial relief for the business-use portion.
Giving away shares
For shares to qualify, they must be in a company that is either:
- Not listed on any recognised stock exchange (unlisted shares), or
- Your personal company (where you hold at least 5% of voting rights)
Additionally, the company must primarily carry out trading activities — meaning it provides goods or services rather than investment activities.
How the relief works
When you give away qualifying assets, you pay no Capital Gains Tax on the gift itself. The relief effectively passes your acquisition cost (what you originally paid) to the recipient, who will use this figure when calculating their own gain if they sell the asset later.
Selling at an undervalue
You might still have to pay some tax if you sell an asset for less than its market value to help the buyer, and you make a gain on what you originally paid for it.
Here's how this works:
You sell a shop worth £81,000 to your brother for £40,000. You originally paid £23,000 for it. You must include the £17,000 gain (£40,000 minus £23,000) when working out your total taxable gain for the tax year. The remaining gain — the difference between the £81,000 market value and the £40,000 sale price — is held over and will be taxed when your brother eventually sells the shop.
The recipient's position
The person receiving the gift must use the original cost when they work out their own gain if they later sell the business assets or shares. This means they inherit the deferred Capital Gains Tax liability along with the asset.
How to claim the relief
Making a claim for Gift Hold-Over Relief requires joint action between you and the person receiving the gift.
You must:
1. Claim jointly with the recipient
2. Submit your claim at the time you make the gift
3. Complete the form in the relief for gifts and similar transactions helpsheet (HS295)
4. Include the completed form with your Self Assessment tax return
If you file your Self Assessment tax return online, you'll need to upload a scanned copy of the completed form.
Both parties need to agree to the claim because it affects both your tax positions — you're deferring your tax liability, and the recipient is accepting a future tax bill.
When to seek advice
Gift Hold-Over Relief can be complex, particularly when:
- Assets are used partly for business and partly for personal purposes
- You're selling assets at an undervalue
- You're dealing with shares in companies with mixed trading and investment activities
- You're a trustee making gifts from a trust
If you're considering claiming this relief, particularly for high-value assets, it's worth speaking to your accountant before making the gift. The timing and structure of the transaction can significantly affect the tax outcomes for both you and the recipient.
Sources
This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.
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