What are the capital gains tax (CGT) implications of giving away assets? What exemptions and reliefs are there for 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.
  • Your donee acquires the asset at it’s 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 capital gains tax which can also apply for gifts:

  • Annual exemption.
  • Entrepreneurs relief.
  • Rollover relief (for transfers at an undervalue only).
  • Gift relief.
  • Holdover relief.
  • Spouse exemption.
  • Private residence relief.

See An index to Capital gains tax reliefs

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:

If the gift results in a capital loss and the gift is to a connected person this will be a clogged loss.

  • Clogged losses only be used to offset capital gains accruing on the disposal of an asset to the same person, whilst the parties are still connected. 
  • Connected persons here include spouses and direct relatives e.g. your parents, siblings or children.
  • See CGT connected persons and losses 

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 (£12,000 for 2019/20) may be used against a gain on a gift.
  • The spouse exemption applies where a gift is made to a spouse or civil partner unless the gift is made in the tax year following the year of separation. See Divorce & separation toolkit
  • Private residence relief 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. 
  • Entrepreneurs relief  may apply if the assets are trading 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 s165 TCGA 1992  applies where the assets being given have been used in a trading business.
    • The recipient must be a UK resident individual.
    • A joint election must be made.
    • It is possible to defer valuation of the asset until the donee sells it or gives it away.
  • Holdover relief under s260 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 trust, or a transfer of an asset out of a trust to a beneficiary.
    • There does not have to be IHT paid, only a transfer subject to an IHT charge. For example, there may not be any tax due on a transfer into a trust because of the nil rate band.
    • The assets do not have to be business assets for this relief to apply.
    • This is not a joint claim and is made by the transferor only.
    • S260 relief does not apply to transfers into a settlor-interested trust, or to a Potentially Exempt Transfer for IHT purposes or to transfers where the donee is not UK resident.
    • Where a gift qualifies for either s165 or 260 relief, s260 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 will change for residential property and a return will have to be filed and the tax paid within 30 days of the date of disposal unless no tax is due.
  • It is possible to elect for the tax to be paid in equal annual instalments over a ten-year period (subject to interest charges) where the gift is of:
    • Land
    • A controlling holding of shares or securities
    • Any holding of unlisted or AIM listed shares or securities
  • Tax being paid by instalments (plus interest) becomes immediately due if the asset was 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 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 the acquisition cost. These are:

  • Rollover relief (for transfers at an undervalue only).
  • Gift relief under s165.
  • S260 holdover relief.

For example:

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 jointly claim business asset gift relief (see above). Charles’ base cost in the shares is £1,000,000 less the held over gain of £990,000, so £10,000. Charles has effectively taken over Elizabeth’s gain.

  • 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 and death

  • It is unlikely that you will have any incidental costs of acquiring the asset when it has been gifted to you but if you do then these will be deductible on a future disposal.
    • You may have incurred stamp duty land tax (SDLT) if you acquired the asset at an undervalue and paid more than £40,000 for it, or if you took over a mortgage of more than £40,000 from the person who gave you the asset.
    • In all other cases SDLT is unlikely to have been due as there has been no consideration for the asset.
  • When you sell the gifted asset you can also deduct anything you have spent on it since acquisition which qualifies as enhancement expenditure, that is anything that is:
    • Spent wholly and exclusively by you or on your behalf
    • For the purposes of enhancing the value of the asset
    • Which is reflected in the nature and state of the asset on disposal or
    • Which is wholly and exclusively incurred in establishing, preserving or defending title to, or to a right over, the asset.

See How to calculate a capital gain or loss 

Other taxes

  • There may also be inheritance tax 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 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 due even though there is no consideration being given.

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