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May 5, 2023

What is Gift Holdover Relief and How Does It Work?

What is Gift Holdover Relief and What is Eligible?

This relief is a Capital Gains Tax (“CGT”) deferral and is a tool that can be valuable to any business owner. If correctly structured, you can create tax deferrals that you did not expect and mitigate a CGT liability.

The eligibility for making a claim will depend on:

  • The type of gift – whether it is ‘business asset’;
  • The type of ‘business asset’;
  • If shares are being gifted, the amount and type of shares;
  • Whether consideration is being exchanged alongside the gift; and
  • Whether any restrictions will apply.

What Assets Qualify?

Assets that qualify for relief include:

  • Business Assets – Assets used for the purpose of a trade, profession or vocation will generally qualify for this relief (e.g. land and buildings or plant and machinery). Even a Furnished Holding Letting qualifies as a trade for these purposes! Assets used in a donor’s own ‘personal trading company’ will also qualify.
  • Unlisted Shares – Shares in an unquoted trading company will fall within this definition, as will shares in a ‘personal trading company’. HMRC apply certain tests to determine whether the company will be deemed to be ‘trading’ so tax advice is paramount in establishing availability for relief. In terms of listed trading company shares, relief will only be available if the donor has a certain percentage of shares within that company.
  • Agricultural Land – Gifts of ‘qualifying agricultural land or buildings’ can potentially qualify for this relief.
  • Chargeable transfers for IHT purposes – Gift Holdover Relief is available where the disposal is a chargeable transfer for IHT purposes, such as a transfer to a discretionary trust.

How Gift Holdover Relief actually works?

Gift Holdover Relief means that the donor does not have to pay any CGT on the gain on the gift, instead it will be up to the new owner to pay the CGT. Gift Holdover Relief changes the following:

  1. Who is liable to pay the CGT - You are effectively passing the tax liability onto the recipient of the gift.
  2. When the CGT liability is going to be paid - the donor’s gain can be deferred by rolling over the capital gain against the recipient’s base cost of the asset so this defers the date of paying the CGT to the date of the eventual onward sale by the recipient.

What limits are there on Gift Holdover Relief and What are the Time Limits?

There are a few restrictions on the availability of Gift Holdover Relief, including:

  1. Gift Holdover Relief is not available on a gift to a ‘settlor interested trust’.
  2. Gift Holdover Relief is restricted to those recipients who are UK resident, with clawback provisions should they emigrate within a certain timeframe of receiving the gift. In some circumstances, HMRC can pursue the original donor for the recipient’s tax liabilities!
  3. Gift Holdover Relief is restricted where there is a sale at an undervalue.
  4. There is interaction between how Gift Holdover Relief and Business Asset Disposal Relief applies in chronological order so specialist tax advice is needed to demonstrate which is the most tax advantageous.
  5. Restrictions are in place where the business asset has been used partly for non-business use.

The time limit for the Gift Holdover Relief claim is four years from the end of the tax year of disposal. Therefore for a gift made in the 2023/24 tax year, a gift relief claim will only be valid if it is made on or before the 05 April 2028.

How is Gift Holdover Relief claimed?

In order for the donor to receive Gift Holdover Relief, it is necessary for a claim to be made as this is not an automatic relief. In the majority of cases a joint election will have to be made between the donor and the recipient, as the donor needs the consent of the recipient for the Gift Holdover Claim to be made. The only time when a Gift Holdover Relief claim does not need a joint election is in the case of a gift to a trust.

It is advisable to work with a tax advisor so that the claim can be made as accurately as possible and the maximum relief is obtained.

If you need any advice/assistance on gift relief, please contact a member of our team today

Disclaimer: This article is for general information only and is not intended to constitute individual advice. It is recommended that you seek independent tax advice to determine whether Gift Holdover Relief is available.

Contact us today to discuss your tax requirements.
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