Eligibility Criteria for Gift Holdover Reliefs
As a rule, giving away business assets (including unlisted shares), or selling them below market value, will qualify for HS295 Relief.
If the transferor can claim Gift Hold-Over Relief, there is no need to pay Capital Gains Tax (CGT) when giving away an asset.
Instead, the transferee (the person receiving the gift) will pay any applicable taxes on the ‘held-over gain’ when they sell (dispose of) it.
Important: In most cases, Capital Gains Tax is not payable on gifts when you ‘transfer ownership‘ to a spouse (husband, wife), civil partner, or charity.
Claiming Reliefs on Gifts and Similar Transactions
HM Revenue and Customs (HMRC) recognises two (2) basic types of relief:
- Hold-over Relief (allowing a chargeable gain to be postponed until the transferee loses ownership of the asset).
- Other reliefs (due by automatic process).
Under the rules of Capital Gains Tax in the United Kingdom, you can claim Holdover Relief for gifts that qualify as (any):
- Agricultural land.
- Business assets.
- Chargeable transfers for Inheritance Tax purposes.
- Those which are specifically exempted from Inheritance Tax.
- Unlisted shares (e.g. in a trading company).
HMRC Gift Hold Over Relief will be due by automatic process on business assets (any):
- Gifted to charities, Community Amateur Sports Clubs (CASCs), and certain other organisations.
- Given as works of art (when they meet certain undertakings).
- That qualifies as sales of works of art to certain bodies (can also include the transfer in settlement of Inheritance Tax liability).
Note: The Capital Gains Tax guide contains more advice and information about how an increase in value results in chargeable gains after selling or disposing of property, shares, or personal possessions.
Disposal of Business Assets
The main conditions for claiming tax reliefs of this nature will depend on whether the item you are giving away is a business asset or unlisted shares. Thus, to get full or partial relief, you would need to be:
Giving Away Shares and Securities
If you will be giving away shares, they would need to be in a company (either):
- Classified as your ‘personal company’.
- Not listed on any of the recognised stock exchanges.
The principal activities of the company would need to be in trading (e.g. providing goods or services). Hence, it cannot be in non-trading activities (e.g. offering financial investments).
Note: Similar treatment may also apply to business assets gifted to registered housing associations and certain kinds of trusts for employees.
How Does Gift Hold-Over Relief Work?
Despite not having to pay Capital Gains Tax on any business assets that you give away, the transferor may need to pay tax when:
- Making a gain on the amount that they paid for it.
- Selling an asset for an amount that is less than it’s real worth (e.g. market value) to help close the deal with the buyer.
Holdover Relief Calculation Example:
The asset you give away to a family relative is worth £50,000 – even though you paid £17,000 for it. Thus, the chargeable gain is £33,000. If you or your relative make a claim for Holdover Relief, you do not pay tax on the ‘held-over gain’.
So, the cost for calculating the transferee’s CGT liability on any future disposal of the asset would be its true value (e.g. £50,000) But, it gets reduced by the amount of the held-over gain. In this example a reduction of £33,000 would leave a base cost of £17,000.
How to Claim Gift Hold Over Relief
You should make a joint claim for Holdover Relief (e.g. the transferee and the transferor) at the same time that the gift is given away.
Use the Capital Gains Tax relief on gifts and similar transactions (Self Assessment helpsheet HS295) and include it with your Self Assessment tax return. You can upload a scanned copy if you send tax returns online.
Advice on Self Assessment
Related Help Guides
Note: This short video presented by HM Revenue and Customs explains what allowable expenditure you can claim against Capital Gains Tax.