Most people do not realise that giving something away can cost more tax than selling it.
That sounds wrong at first. Yet under UK tax law, gifting an asset is treated as a disposal at market value. No money needs to change hands. The tax exposure still exists. For property owners, family businesses, and individuals planning ahead for inheritance tax, this is usually discovered too late.
Gift holdover relief exists to deal with this exact problem. Not as a loophole. Not as a concession. But as a controlled mechanism that delays Capital Gains Tax where HMRC accepts that ownership is changing, not value being realised.
Understanding how it works in real life matters more now than it did a decade ago.
From HMRC’s perspective, a gift is no different from a sale. The donor is treated as disposing of the asset at its full open market value on the date of transfer. Any increase in value since acquisition becomes chargeable.
This catches people out in very ordinary situations.
A parent transfers a rental property to an adult child.
A business owner gifts shares to the next generation.
An individual settles assets into a trust as part of estate planning.
In each case, Capital Gains Tax can arise immediately unless a specific relief applies. This is where holdover relief becomes relevant.
It is important to be clear about what this relief does and does not do.
The capital gain that would normally arise on the gift is postponed. Instead of being taxed on the donor, it is effectively attached to the asset. When the recipient later disposes of that asset, the deferred gain crystallises.
This principle sits at the centre of both section 165 TCGA 1992 and s260 holdover relief.
Section 165 applies to gifts of qualifying business assets. This includes trading businesses, shares in trading companies, and assets used for the purposes of a trade.
HMRC’s rationale here is commercial continuity. If a business is being passed on rather than sold, forcing an immediate CGT charge can undermine succession altogether.
That is why gift holdover relief under section 165 exists.
The relief is not automatic. Both parties must make a joint election. The asset must genuinely qualify. The valuation must be defensible.
A frequent issue arises where investment activity is mixed with trading activity. HMRC will look closely at whether a company is truly trading or merely holding investments. If that line is crossed, section 165 relief simply does not apply.
S260 holdover relief applies mainly to transfers into certain trusts where an inheritance tax charge arises. Without this relief, the same transaction could be taxed twice, once for IHT and again for CGT.
HMRC allows the gain to be held over in these cases, but only where the inheritance tax position supports it.
Trust related holdover relief claims are reviewed more rigorously than most. Valuations, trust terms, and IHT calculations are cross checked. Even minor inconsistencies can delay or deny relief.
This is not an area where generic templates or assumptions work.
A valid holdover relief claim form is essential. HMRC does not accept informal claims or retrospective explanations.
The form requires details of the asset, the transaction, the legislative basis for relief, and confirmation that both parties agree to the gain being deferred. Any error weakens the claim.
Common problems include incorrect asset descriptions, unsupported market values, and misunderstanding which section of legislation applies. Once rejected, fixing a hold over relief claim form can be far more difficult than getting it right first time.
This distinction is often misunderstood.
A spouse exemption removes Capital Gains Tax altogether.
Gift holdover relief delays it.
The difference matters. Deferred tax has a habit of resurfacing at inconvenient times, often when the recipient has higher income, fewer reliefs available, or different tax rates apply.
Good planning takes this into account upfront.
|
Transaction Type
|
CGT at Time of Gift
|
Holdover Relief Position
|
When Tax Is Paid
|
|---|---|---|---|
|
Gift of trading business
|
No if relief claimed
|
Section 165 TCGA 1992
|
On recipient disposal
|
|
Gift of investment property
|
Yes
|
Usually not available
|
Immediately
|
|
Transfer into discretionary trust
|
No if IHT charged
|
s260 holdover relief
|
Deferred
|
|
Gift to spouse
|
No
|
Not required
|
No CGT
|
This table reflects how HMRC applies the rules in practice, not theory.
HMRC’s approach has changed.
What was once treated as a routine relief is now seen as an area prone to misapplication. Increased data matching, digital records, and coordinated reviews between CGT and IHT mean errors are identified faster.
Future changes are more likely to tighten conditions than relax them.
This makes accurate classification and evidence increasingly important.
When gift holdover relief is claimed, the recipient steps into the donor’s tax position. The original base cost is adjusted to reflect the deferred gain.
This can be a surprise years later when the asset is sold and the CGT bill is larger than expected. This is why it is not enough to focus only on the donor’s position.
The full lifecycle of the asset matters.
There are situations where deferring tax creates a worse outcome.
If the donor has available capital losses.
If the donor pays CGT at a lower rate than the recipient is likely to.
If future disposals are expected during higher tax rate periods.
In such cases, paying Capital Gains Tax upfront can be the more efficient option. This is often overlooked in generic gift relief discussions.
Holdover relief is not something you use to “save tax”. That mindset usually causes problems later. Its real purpose is timing. It gives you room to move assets now without being forced into a tax bill before you are ready for it.
Where things go wrong is not at the point of the gift. It is years later. Files go missing. Valuations that once felt reasonable are suddenly questioned. The person who received the asset may not even remember why the numbers look the way they do.
That is why holdover relief only works when it is treated as part of a wider plan, not a one off form submission. The paperwork, the reasoning, and the future exit all need to line up. If they do not, the relief does not fail quietly. It fails expensively.
Gift holdover relief matters because real people use it. Families passing assets down. Business owners stepping back. Trusts set up with good intentions and tight deadlines. In those situations, the relief can work well, but only when it is handled with care.
This is not an area that tolerates assumptions. Section 165 TCGA 1992 has boundaries. So does s260 holdover relief. When those boundaries are misunderstood or blurred, the consequences tend to show up later, usually at the worst possible time.
Getting it right means knowing why the relief applies, not just that it exists. It means records that still make sense years from now. And it means accepting that holdover relief is not a box to tick, but a decision that follows the asset long after the paperwork is filed, which is precisely where experienced advisers such as Taxaccolega support clients through careful structuring, documentation, and long term tax planning.
Take the stress out of UK taxes and accounting today — speak with a top-rated Taxaccolega chartered accountant for personalised advice tailored to your business or personal needs.
