As we begin the count down to Christmas, this is the second gift from our Festive Selection Box of different tax reliefs and exemptions.

H is for Hold-over relief.

  • The general rule for CGT is that gifts are treated for tax as being disposals made at market value.
  • Without special reliefs for giving, when you make a gift you may well be subject to capital gains tax on it.
  • Hold-over or "gift" relief is available when an individual or the trustees of a settlement make a gift of a capital asset to another person. 

There are two forms of hold-over relief permitted under the Taxation of Capital Gains Act (TCGA 1992):

  • S165 applies to gifts of business assets.
  • S260 applies to gifts of business and non-business assets that are transfers immediately chargeable to IHT.
  • S260 takes priority, so where both apply, relief must be claimed under s260.

An election must be made to claim the reliefs, for s165 this is a joint election between the person making the gift and the recipient of it.

Hold-over relief does not apply to:

  • Gifts made to non-residents or non-resident companies under the control of persons not liable to UK CGT. 
  • A gift of shares or securities made to a company.

Hold-over relief under s165 can be restricted:

  • If the asset has not been used for trade purposes throughout the period it was held by the donor (giver).
  • On the gift of shares if the company holds assets not used for trade purposes.
  • If the gift is partial, such as where consideration has been given but it is less than the market value of the asset. 

Gifting: hacks

  • If an asset does not qualify for s165 relief because it is not a business asset, consider a transfer into a non-settlor interested trust and make the person you want to benefit from the gift a beneficiary so that s260 relief applies instead. The asset can then be transferred back out of trust at a later date and s260 relief claimed again.
  • Consider whether to claim the relief at all; you may just be passing the tax charge onto the next generation. If the assets qualify for Entrepreneurs Relief, consider whether to pay tax at 10% and "bank" entrepreneurs relief if you think it might be revoked or changed so that you no longer qualify. Both reliefs are claimed in the tax return so you have until 31 January following the year of disposal to decide. 

Our selection box so far...

C H R I S T M A S

Useful resources

CGT reliefs: disposal of a business or its assets

Entrepreneurs' Relief

At a glance

Hold-over relief

Gifts and giving

An index to Capital Gains Tax reliefs

UK trusts

 

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