Giving an asset to your child or another family member may feel very different from selling it. However, for UK Capital Gains Tax purposes, a gift can still create a taxable capital gain—even though you receive no money.
Gift Holdover Relief may allow that gain to be deferred. Here is how it works and when it can be claimed.
Do you pay Capital Gains Tax when gifting an asset?
Normally, a gift is treated as a disposal at the asset’s market value on the date of the gift.
For example, a father gives shares in his company to his son:
- Market value: £200,000
- Original cost: £120,000
- Capital gain: £80,000
Without relief, the father could pay CGT on the £80,000 gain despite receiving no cash.
The son would normally be treated as acquiring the shares for their market value of £200,000.
How does Gift Holdover Relief work?
Gift Holdover Relief does not eliminate the capital gain. Instead, it postpones the gain by transferring it to the person receiving the asset.
Using the previous example:
- The father’s £80,000 gain is reduced to nil.
- The son’s £200,000 market-value base cost is reduced by the held-over gain of £80,000.
- The son’s CGT base cost becomes £120,000.
The father pays no immediate CGT. However, when the son eventually sells the shares, the lower base cost will increase his capital gain.
If the entire gain is held over on a straightforward gift, the recipient effectively inherits the donor’s original CGT cost.
Which gifts qualify for Holdover Relief?
There are two main forms of Gift Holdover Relief.
1. Gifts of business assets
Relief may be available when someone gives away a qualifying business asset, including:
- Shares in an unquoted trading company
- Shares in a quoted trading company where the donor has at least 5% of the voting rights
- Land or buildings used in the donor’s trade
- Business goodwill
- Certain plant and machinery
- Assets used by the donor’s partnership or personal trading company
- Qualifying agricultural property
For company shares, the company must be a trading company or the holding company of a trading group. Significant investment or other non-trading activities can restrict or prevent relief.
Importantly, ordinary residential or buy-to-let property will not normally qualify. Property letting is generally an investment activity rather than a trade.
Therefore, a father gifting a normal rental property to his son would usually be taxed on the property’s market-value gain without access to s.165 Holdover Relief.
2. Gifts immediately chargeable to IHT
A separate form of Holdover Relief may apply where the gift is immediately chargeable to Inheritance Tax.
The most common example is a transfer into a relevant property trust. Unlike s.165 relief, the asset does not necessarily need to be a business asset.
However, relief is generally unavailable for a settlor-interested trust where the person creating the trust, their spouse or civil partner, or certain minor children can benefit.
A straightforward gift from a father to an adult son is normally a potentially exempt transfer for IHT. It is not immediately chargeable, so s.260 relief would not normally apply.
Is a formal valuation required?
HMRC’s Statement of Practice SP 8/92 may remove the need to agree a formal valuation where both parties claim full relief and the entire gain is held over.
This can be particularly helpful when gifting shares in a private company, where obtaining an accurate valuation can be difficult and expensive.
A valuation may still be needed where relief is restricted, consideration is paid or only part of the gain qualifies.
How do you claim Gift Holdover Relief?
Relief is not automatic.
For a gift between individuals, the donor and recipient normally make a joint claim. The recipient must therefore agree to accept the reduced CGT base cost.
The claim deadline is generally four years after the end of the tax year in which the gift was made.
For example:
- Gift made during 2025/26
- Claim deadline: 5 April 2030
Different claim procedures can apply to transfers involving trustees.
Before gifting an asset
Before making a gift, check:
- Whether the asset qualifies for Holdover Relief
- The donor’s potential capital gain
- The recipient’s future CGT exposure
- Whether any mortgage or payment is involved
- The Inheritance Tax implications
- Whether the parties are willing to make a joint claim
Gift Holdover Relief can prevent an immediate CGT bill, but it transfers the gain rather than cancelling it. Both parties should understand the future tax consequences before completing the gift.
Important note
The availability of Gift Holdover Relief depends on the specific asset, how it has been used, the relationship between the parties and the terms of the transfer. Other taxes, including Inheritance Tax and Stamp Duty Land Tax, may also need to be considered.
This article provides general information only and should not be treated as tax advice. Professional tax advice should be obtained before gifting an asset or completing a Gift Holdover Relief claim.
