What is gift holdover relief?

Question

Accepted Answer

Here is a comprehensive explanation of gift holdover relief under UK tax law.

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## What the law says

There are **two main statutory provisions** for gift holdover relief, both in the Taxation of Chargeable Gains Act 1992 (TCGA 1992):

### 1. Section 165 – Relief for Gifts of Business Assets

Under **TCGA 1992 s.165**, holdover relief is available where an individual (the "transferor") makes a disposal **otherwise than under a bargain at arm's length** of a qualifying asset, and a joint claim is made by the transferor and the person acquiring the asset (the "transferee") — or by the transferor alone where the transferee is a trustee of a settlement.

**Qualifying assets** under s.165(2) include:
- Assets (or interests in assets) used for the purposes of a **trade, profession or vocation** carried on by the transferor, their personal company, or a member of a trading group of which the holding company is their personal company; and
- **Shares or securities** of a trading company or holding company of a trading group, where either the shares are not listed on a recognised stock exchange, or the company is the transferor's personal company.

**The relief mechanism (s.165(4)):** Where a valid claim is made, both:
- (a) the amount of any chargeable gain that would otherwise accrue to the transferor; and
- (b) the consideration for which the transferee would otherwise be regarded as having acquired the asset

are **each reduced by an amount equal to the "held-over gain"**.

In other words, the gain is not eliminated — it is **deferred** by reducing the transferee's acquisition cost, so the gain crystallises when the transferee later disposes of the asset.

**Where actual consideration is paid** (above the allowable expenditure under s.38), the held-over gain is reduced by that excess — meaning only the portion of the gain above the actual consideration received is held over.

**Exclusions under s.165(3):** The relief does not apply where:
- The transferee is a company (in the case of a disposal of shares or securities);
- The disposal involves qualifying corporate bonds on which a gain is deemed to accrue under s.116(10)(b); or
- A claim under s.260 applies (or would apply) to the disposal.

**IHT interaction (s.165(10)):** Where the disposal is also a chargeable transfer for Inheritance Tax purposes, the IHT attributable to the asset's value (or the chargeable gain if lower) is allowed as a deduction when the transferee later disposes of the asset.

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### 2. Section 260 – Gifts on which Inheritance Tax is Chargeable

Under **TCGA 1992 s.260**, holdover relief is available where an individual or trustees make a disposal **otherwise than at arm's length** and the disposal falls within s.260(2), which includes disposals that are:
- A **chargeable transfer** for IHT purposes (but not a potentially exempt transfer);
- An exempt transfer by virtue of certain IHT provisions (e.g. transfers to political parties, maintenance funds for historic buildings, designated property); or
- Certain trust-related disposals where IHT is not charged due to specific reliefs.

The **relief mechanism** under s.260(3) mirrors s.165(4): both the chargeable gain accruing to the transferor and the transferee's acquisition cost are each reduced by the held-over gain.

**Exclusion:** s.260 relief cannot be claimed on the gift of a qualifying corporate bond (QCB) where a gain is deferred under s.116(10)(b).

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## HMRC guidance / practice

**Two routes to holdover relief:** HMRC recognises that holdover relief can be claimed under either s.165 (business assets) or s.260 (IHT-chargeable gifts). The s.260 route was introduced by FA 1989. HMRC's detailed guidance is found at **CG66880+** (s.165 business assets) and **CG67030+** (s.260 IHT gifts).

**No effect on basic gain computation:** Where a claim is made under either s.165 or s.260, HMRC confirms that the claim does not affect the computation of the basic gain — no part of the basic gain can itself be held over; the relief operates by reducing the transferee's base cost.

**Clawback on emigration:** HMRC notes that after a gain has been held over, the held-over gain becomes immediately chargeable on the transferee if they subsequently become **non-resident** in the UK. This applies to held-over gains under both s.165 and s.260.

**Valuation deferral (SP8/92):** For unlisted shares, HMRC will accept a holdover relief claim without requiring an agreed valuation at the date of transfer. The valuation can be deferred until the transferee disposes of the asset, to avoid complicated and unproductive work. Similarly, for assets held at 6 April 1965 or 31 March 1982, HMRC is content to defer the valuation until the transferee's disposal.

**Partnerships:** Holdover relief under s.165 is available to a partner in a tax-transparent partnership when the partner disposes of a share in a partnership asset, subject to the normal conditions.

**IHT deduction on subsequent disposal:** Where hold-over relief has been or could have been claimed under s.260, the IHT charged on the original gift (or, if less, the amount of the chargeable gain) can be claimed as a deduction in computing the gain on the transferee's subsequent disposal.

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### Summary

In short, **gift holdover relief defers a Capital Gains Tax charge** that would otherwise arise when an asset is gifted. Instead of the transferor paying CGT on the gain at the time of the gift, the gain is "held over" and effectively passed to the transferee by reducing their acquisition cost — so the tax becomes payable when the transferee eventually sells the asset.