Holdover Relief (Gift Relief) for CGT: Gifting Business Assets 2026/27
How CGT holdover relief (gift relief) works in 2026/27: qualifying assets, the joint election, form HS295, and how it interacts with Inheritance Tax on gifts within the 7-year rule.
What Is Holdover Relief?
Holdover relief, commonly known as gift relief, is a Capital Gains Tax relief that allows individuals to give away certain business assets without triggering an immediate CGT bill. Normally, gifting an asset is treated for CGT purposes as if it had been sold at market value, even though no money changes hands -- this can create a "dry" tax charge where the donor owes tax but has received no cash to pay it. Holdover relief solves this by allowing the gain to be held over (postponed) rather than charged immediately.
The mechanism works by transferring the gain, not eliminating it. The recipient's acquisition cost for future CGT purposes is reduced by the amount of gain held over, meaning the tax liability passes down the chain rather than disappearing. When the recipient eventually sells the asset, they pay CGT on the combined gain -- their own increase in value plus the gain the original donor held over.
Holdover relief is most commonly used in family business succession planning, where a parent wants to pass shares in a family trading company, or a farm, to the next generation during their lifetime rather than waiting until death.
Which Assets Qualify
Not every gift qualifies for holdover relief. The main categories of qualifying assets are:
- Business assets used in a trade, profession or vocation carried on by the donor, or by the donor's personal company (a company in which the donor holds at least 5% of the voting rights)
- Shares in unlisted trading companies (including AIM-listed shares, which are treated as unlisted for this purpose)
- Shares in the donor's personal trading company, even where those shares are fully listed, provided the 5% minimum voting rights test is met
- Agricultural property that qualifies for Agricultural Property Relief, whether or not it is also a business asset
Assets that generally do not qualify:
- Investment properties and buy-to-let portfolios (unless they form part of a genuine property trading or development business)
- Shares in listed companies where the donor does not hold a qualifying personal company stake
- Personal possessions and most other non-business assets
The Joint Election: Form HS295
Holdover relief is not automatic. Both the donor and the recipient must make a joint election using HMRC form HS295 (Claim for Hold-over Relief), which must be submitted within 4 years of the end of the tax year in which the gift was made. For a gift made in the 2026/27 tax year (ending 5 April 2027), the election deadline would be 5 April 2031.
If no valid joint election is made, the gift is simply treated as a disposal at market value for CGT purposes, and the donor is liable for CGT on the full gain in the tax year of the gift, exactly as if the asset had been sold to a third party.
Practical steps for a valid claim:
- Obtain a professional valuation of the asset at the date of the gift (essential for unlisted shares).
- Calculate the gain that would otherwise arise on a market value disposal.
- Complete and both sign form HS295.
- Submit the form with, or alongside, the donor's Self Assessment return for the relevant tax year.
- Retain valuation evidence, as HMRC's Shares and Assets Valuation team can query the figures used, particularly for private company shares.
Interaction with Inheritance Tax and the 7-Year Rule
Holdover relief only ever deals with CGT. It has no bearing on whether the same gift is subject to Inheritance Tax (IHT), which is assessed under entirely separate rules.
Most lifetime gifts of business or agricultural assets to individuals are Potentially Exempt Transfers (PETs). A PET becomes completely exempt from IHT if the donor survives for 7 years after making the gift. If the donor dies within that 7-year window, the gift may become chargeable to IHT, though taper relief can reduce the tax due on gifts made more than 3 years before death.
Many gifts that qualify for CGT holdover relief also qualify for Business Property Relief (BPR) or Agricultural Property Relief (APR) for IHT, which can reduce the IHT value of the gift by 50% or 100%. However, these reliefs are assessed independently and have their own conditions, including minimum ownership periods before the gift and, importantly, continued qualifying use by the recipient after the gift and at the time of the donor's death if within 7 years.
Worked Example
Michael has run a manufacturing business through his personal trading company for 20 years. He gifts his entire shareholding, valued at £900,000, to his daughter Priya. Michael's original base cost (from when he set up the company) was £50,000, so the gain that would otherwise arise is £850,000.
- Michael and Priya jointly elect for holdover relief using form HS295.
- Michael pays no CGT on the gift.
- Priya's base cost for future CGT purposes becomes £50,000 (Michael's original cost), not the £900,000 market value at the date of the gift.
- The gift is a PET for IHT. If Michael survives 7 years, no IHT is due on the gift. If the shares still qualify for Business Property Relief at 100% at the date of any earlier death, IHT exposure may be eliminated even within the 7-year window.
- If Priya sells the company for £1.2 million five years later, her CGT gain is calculated as £1.2 million minus £50,000 = £1,150,000, which includes both her own growth and the gain originally held over from Michael.
Practical Considerations
- Holdover relief defers tax, it does not cancel it -- the eventual disposal by the recipient will usually crystallise a larger gain than if the recipient had simply acquired the asset at market value.
- Business Asset Disposal Relief on the recipient's eventual sale is tested against the recipient's own circumstances (holding period, shareholding percentage, employment status) at the time of their disposal, not the original donor's history.
- Where a sale at undervalue takes place rather than an outright gift, holdover relief is restricted to the extent that consideration received exceeds the donor's original base cost.
- Gifts into most trusts can also use holdover relief, but gifts into discretionary trusts typically trigger an immediate IHT charge as a chargeable lifetime transfer, so the CGT and IHT positions should be modelled together before proceeding.
- Because valuations of unlisted shares are inherently judgemental, engaging a valuer experienced with HMRC Shares and Assets Valuation reduces the risk of a later dispute over the size of the held-over gain.
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Frequently asked questions
What is holdover relief (gift relief)?
Holdover relief, also called gift relief, lets you gift certain business assets or unlisted trading company shares without paying Capital Gains Tax at the point of the gift. Instead, the recipient takes on your original acquisition cost, so the gain is held over until they eventually sell the asset.
What assets qualify for holdover relief?
Qualifying assets include business assets used in a trade carried on by the donor (or their personal company), shares in unlisted trading companies, shares in the donor's personal trading company (at least 5% voting rights) even if listed, and agricultural property. Gifts of investment property, quoted shares in companies where the donor has no personal company interest, and most personal possessions do not qualify.
Do both the giver and recipient need to agree to holdover relief?
Yes. Holdover relief requires a joint election signed by both the donor and the recipient (donee), submitted using HMRC form HS295, normally within 4 years of the end of the tax year of the gift. Without a valid joint election, the gift is treated as a normal disposal at market value and CGT is due from the donor in the usual way.
How does holdover relief interact with Inheritance Tax on gifts?
Gifts of business or agricultural assets are often Potentially Exempt Transfers (PETs) for Inheritance Tax purposes, becoming fully exempt if the donor survives 7 years. Holdover relief deals only with CGT; it does not affect the IHT treatment. However, if the donor dies within 7 years and the asset no longer qualifies for Business Property Relief or Agricultural Property Relief, both the deferred CGT gain and an IHT charge could potentially arise, so the interaction needs careful planning.
What happens if the recipient later sells the gifted asset?
The recipient's base cost for CGT is reduced by the amount of gain held over. When they sell, they pay CGT on the full gain since the original owner acquired the asset (their own gain plus the held-over gain), calculated at the CGT rates in force at the time of their sale.
Can holdover relief apply to gifts to a trust?
Yes, gifts of qualifying business assets into most trusts can also benefit from holdover relief, and separately, gifts into a discretionary trust are usually chargeable lifetime transfers for IHT rather than PETs, with different IHT rules applying immediately at the 20% lifetime rate above the nil-rate band.
Is there a limit on how much gain can be held over?
There is no cap on the value of gain that can be held over under gift relief for qualifying business assets, unlike the £1 million lifetime limit that applies to Business Asset Disposal Relief.
Does holdover relief apply if I sell the asset to my child at undervalue rather than gifting it?
Holdover relief can still apply to a sale at undervalue to a connected person, but the relief is restricted where actual consideration is received. If the consideration exceeds the donor's original base cost, the excess is chargeable to CGT immediately and only the balance of the gain can be held over.
Does holdover relief affect Business Asset Disposal Relief on a later sale?
It can. Because holdover relief passes the historic gain to the recipient, the recipient's eventual disposal is what is tested against Business Asset Disposal Relief conditions (such as the 2-year minimum holding and 5% shareholding tests), based on the recipient's own circumstances at the time of sale, not the original donor's.
What paperwork is needed to claim holdover relief?
Both parties complete and sign HMRC form HS295 (Claim for Hold-over Relief), which is submitted with, or referenced in, the donor's Self Assessment return for the tax year of the gift. Valuations of the gifted asset at the date of the gift should be retained, as HMRC can query the market value used.
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