How does holdover (gift) relief work for Capital Gains Tax?

Full answer

Holdover relief (also called gift relief) defers Capital Gains Tax when assets change hands for free or below market value. It is governed by sections 165 and 260 of the Taxation of Chargeable Gains Act 1992 (TCGA 1992). How it works: instead of the donor paying CGT on the market value gain at the point of gift, the gain is "held over." The recipient acquires the asset at a base cost equal to the market value minus the deferred gain. When the recipient eventually sells, they pay CGT on the full accumulated gain including the amount held over. There are two main routes to holdover relief. Section 165 (business assets): applies to gifts of assets used in a trade carried on by the donor; shares in unquoted trading companies; and agricultural property. The asset must be a qualifying business asset at the time of the gift. Section 260 (gifts that are immediately chargeable to IHT): applies to gifts into discretionary trusts, gifts into interest-in-possession trusts, and some other transfers where IHT is immediately chargeable. This is useful for estate planning via trusts even where the asset is not a business asset. Qualifying assets under s165 include: plant and machinery, land and buildings used in a trade, shares in unquoted trading companies (including AIM shares), and agricultural land. The relief is not automatic -- both the donor and recipient must jointly elect by submitting form HS295 to HMRC within 4 years of the end of the tax year in which the gift is made. Restrictions apply: holdover relief is restricted if the asset has had any non-business use (for example, a property partly used as a home). If the donee is a non-UK resident, holdover relief is not available (to prevent the gain escaping UK tax entirely). IHT interaction: holdover relief under s260 can be used on the same gift that qualifies for Business Relief or Agricultural Relief for IHT purposes. CGT annual exempt amount: both parties should consider whether the annual exempt amount (GBP3,000 in 2026/27) could offset some of the gain before electing holdover.

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