What are the Capital Gains Tax (CGT) implications of giving away assets? What exemptions and reliefs are there for gifts?
This is a freeview 'At a glance' guide to Capital Gains Tax and gifts.
At a glance
- A gift of an asset is treated as a disposal for CGT purposes.
- The disposal value for CGT purposes is the asset's market value at the time the gift is made.
- If you make a gift you are known as the 'donor'.
- The recipient of the gift is known as the 'donee'.
- On making a gift you will be subject to CGT on the difference between the market value of the gift and its cost to you, subject to any of the CGT reliefs available.
- The donee acquires the asset at its market value but this is subject to reductions if certain reliefs have been claimed.
- The same rules apply if the gift involves a transfer at an undervalue.
There are various reliefs and exemptions applicable to CGT which apply for gifts:
- Annual exemption.
- Business Asset Disposal Relief (BADR, formerly Entrepreneurs' Relief).
- Rollover Relief (for transfers at an undervalue only).
- Gift/holdover Relief.
- Spouse exemption.
- Private Residence Relief (PRR).
Overview and examples
How do I calculate the CGT on a gift?
As a gift is a CGT disposal the normal rules apply for calculating CGT:
- The proceeds are the market value at the date of the gift.
- Costs are Deductible in the same way as if the asset were being sold to a third party.
- See How to calculate a capital gain or loss.
If the gift results in a capital loss and the gift is to a Connected person this will be a clogged loss and special rules apply to determine when that loss can and cannot be utilised.
What reliefs and exemptions can I claim when I give away an asset?
Certain reliefs and exemptions apply to gifts of assets in the same way as they do to sales of assets.
- The CGT annual exemption may be used against a gain on a gift.
- The spouse exemption applies where a gift is made to a spouse or civil partner, and there are special rules on separation and divorce, depending on the date of the gift. See Divorce & separation toolkit.
- Private Residence Relief (PRR) may apply to all or part of the gain if you are giving away your home and all of the conditions for relief are met.
- Business Asset Disposal Relief (Entrepreneurs' Relief) may apply if the assets are business assets and all the conditions for relief are met.
- In this case, tax will be due at 10% without any proceeds having been received to pay the tax therefore other reliefs may be more desirable (see below).
- Rollover Relief may be possible if the assets being gifted have been used in a trading business, some proceeds have been received which are reinvested in qualifying business assets, and the other conditions for relief are met.
- If no proceeds have been received because there is an out-and-out gift rather than a sale at undervalue then there is nothing to reinvest and the relief cannot apply.
Certain reliefs only apply to gifts and transfers at an undervalue:
- Gift Relief under s.165 TCGA 1992 applies where the assets being given have been used in a trading business. It is possible to defer the valuation of the asset until the donee sells it or gives it away.
- Holdover Relief under s.260 IHTA 1984 applies where the gift is subject to an Inheritance Tax charge. This is usually where there is a gift of an asset into a trust or a transfer of an asset out of a trust to a beneficiary.
- Where a gift qualifies for either s.165 or 260 relief, s.260 relief takes precedence.
How do I pay the tax when I haven’t received any money for the asset?
- Up to April 2020, Capital Gains Tax is due under Self Assessment by 31 January following the end of the tax year in which the disposal takes place.
- From April 2020 this changed for residential property. A return has to be filed and the tax paid within 60 days (30 days to 27 October 2021) of the Date of disposal unless no tax is due, such as where PRR applies in full.
- It is possible to elect for the tax to be paid in equal annual installments over a ten-year period (but subject to interest charges) where the gift is of certain specified assets:
- A controlling holding of shares or securities.
- Any holding of unlisted or AIM-listed shares or securities.
- Any tax being paid by installments, plus interest thereon, becomes immediately due if the asset is given to a connected person or by a trustee, and the recipient then sells the asset for valuable consideration.
- For any other assets, the tax will be due at the normal time even though no money has been received for the assets.
How do I work out my cost if an asset was given to me?
When you are given a gift, because the person giving it to you is treated as making a disposal at market value then your cost for future disposals is that same market value, except where certain reliefs were claimed when the gift was made.
Some reliefs cause the gain triggered by the gift to be passed onto the donee by rolling or holding it over into their acquisition cost. These are:
- Rollover Relief under s.152 TCGA (for transfers at an undervalue only).
- Gift Relief under s.165 TCGA.
- Holdover Relief under S.260 TCGA.
Elizabeth gives her son Charles shares in her trading company when they are worth £1m. As she only paid £10,000 for them she has a gain of £990,000. They claim business asset gift relief under s.165 (see above).
If you inherited the asset on someone’s death then your cost is the market value at the date of death i.e. the probate value.
- It is important that valuations are obtained on someone’s death, even if there is no IHT to pay, to provide the beneficiaries under the will with details of their costs for calculating Capital Gains Tax on future sales of the assets.
See CGT: Death
- There may also be Inheritance Tax (IHT) implications of making a gift, see IHT: Gifts
- As above, if any consideration is given for land and property gifts including taking over a mortgage or other liability then Stamp Duty Land Tax (SDLT) will be due unless the amount is below £40,000.
- If the gift is to a company you are Connected to, this is a market value transfer for SDLT and tax will be due even though there is no consideration being given.