Guidance

HS295 Relief for gifts and similar transactions (2023)

Updated 11 October 2024

The following guidance includes calculations.

This helpsheet:

• explains how gifts are dealt with for Capital Gains Tax (CGT) purposes
• mainly covers Hold-over Relief, which allows liability to be deferred and passed on to the recipient of the gift
• covers gifts to charities
• should only be used as an introduction — if you’re unsure about your circumstances, ask your tax adviser or HMRC for advice and find more information in the Capital Gains Tax Manual
• will help you to fill in the Capital Gains Tax summary pages of your tax return
• includes the form you must use to claim Hold-over Relief

If you need information about liability to Inheritance Tax on gifts or transfers to settlements, contact the Inheritance Tax and Probate Helpline.

The Capital Gains Tax Manual has more information and includes links to the Inheritance Tax Manual.

References to a person becoming entitled to trust property, are references to the occasion upon which a person becomes absolutely entitled as against the trustee. There is deemed to be a disposal by the trustees to that person (see Helpsheet 294 Trusts and Capital Gains Tax).

Gifts and similar transactions

If you transfer an asset to another person at no charge, it is considered to be both a gift and a disposal different to that of a bargain at arm’s length. If you receive something for transferring an asset, but the consideration is less than its market value, this is also considered to be a disposal different to that of a bargain at arm’s length.

A bargain made at arm’s length is a normal commercial transaction between two or more persons. All of the parties involved will be trying to obtain the best deal for themselves in their particular circumstances and the market value is usually paid.

In the absence of Hold-over Relief, you’ll be treated as though you had disposed of the asset for the market value for the purposes of CGT (see the Capital Gains Tax summary notes).

Example 1

You sell a shop to your brother for £40,000 when the shop was worth £100,000. In the absence of Hold-over Relief, your liability to CGT would be based on the full market value of £100,000.

Full or partial relief from CGT may be available under these circumstances. The Hold-over Relief covers all disposals made (other than those made by way of a bargain at arm’s length). Find out more about if you receive payment for the asset.

Relief may also be available when a person becomes entitled to trust property, or where trustees are treated as if they had made a disposal (except in cases concerning anti-avoidance provisions). When this helpsheet refers to gifts, you should assume it includes these cases unless other definitions exclude them.

This helpsheet does not cover transfers to your spouse or civil partner (see Helpsheet 281 Capital Gains Tax, civil partners and spouses).

Reliefs available for gifts and similar transactions

There are generally 2 types of gift relief:

• Hold-over Relief, where the chargeable gain is postponed and where a claim is needed (usually until the transferee disposes of the asset)
• other reliefs, which are due automatically

Hold-over Relief may be claimed for gifts:

• of business assets
• of unlisted shares, for example in trading companies
• of agricultural land
• which are chargeable transfers for Inheritance Tax purposes
• which are of a certain type, specifically exempted from Inheritance Tax
• of Interests in UK Land to or from Non-UK Residents

Relief is due automatically on:

• gifts to charities, Community Amateur Sports Clubs and certain other bodies
• gifts of works of art and so on, where certain undertakings have been given
• sales of works of art to certain bodies, including transfers in settlement of Inheritance Tax liability

How Hold-over Relief works

Example 2

You give an asset worth £50,000 to your brother. It cost you £17,000. The chargeable gain is therefore £33,000. If a claim is made by you and your brother, you do not have to pay tax on your chargeable gain, which is known as the held-over gain.

Instead, your brother’s cost for the purposes of calculating his CGT liability on any future disposal of the asset (which would normally be its value of £50,000) is reduced by the amount of the held-over gain (£33,000), leaving a base cost of £17,000.

Where Hold-over Relief has been given on the disposal of a house, there may be restrictions on the entitlement to private residence relief on a subsequent disposal. Find more information in Helpsheet 283 Private Residence Relief.

Disposals that qualify for Hold-over Relief

There are 5 categories of disposals that qualify. Before identifying the category, you must determine the type of company from which the disposal is being made. Types of companies include:

• personal companies, where an individual has at least 5% of the voting rights
• trading companies, where the company carries out trading activities and does not carry out (to a substantial extent) non-trading activities
• holding companies, where the company has one or more 51% subsidiaries
• trading groups, which are groups where one or more members carry out trading activities and do not carry out (to a substantial extent) non-trading activities

Find more information in the Capital Gains Tax Manual.

Category 1: Business assets

Hold-over Relief is available on the disposal of a business asset. This is an asset which is used for the purposes of a trade, profession or vocation, carried on by:

• you, individually or in partnership
• your personal company
• a member of a trading group, whose holding company is your personal company

In the case of trustees, Hold-over Relief is available on the disposal of an asset which is used for the purposes of a trade, profession or vocation, carried on by:

• the trustees
• a beneficiary with an interest in possession in the settled property immediately before the disposal

The amount of the gain that can be held over is restricted, and part chargeable at once, if:

• the asset is land or a building of which only part was used for the purposes of the trade
• at some time during your ownership the asset was not used for the purposes of the trade

Category 2: Shares and securities

If the shares or securities (of a trading company or holding company of a trading group) are not listed on a recognised stock exchange, Hold-over Relief is available on their disposal. The Alternative Investment Market (AIM) is not a recognised stock exchange.

Listed shares and securities can qualify if the company is your personal company or the trustees have no less than 25% of the voting rights.

A gift of a Qualifying Corporate Bond (that you received in exchange for shares), is deemed as a disposal which gives rise to a chargeable gain by reference to the original shares (see Helpsheet : 285 Capital Gains Tax, share reorganisations and company takeovers). This gain cannot be held over.

The held-over gain is restricted by reference to non-business assets of the company which would give rise to a chargeable gain (or allowable loss) if sold, where either the:

• company is your personal company
• trustees making the disposal had at least 25% of the voting rights at any time in the last 12 months

Category 3: Agricultural land

Where agricultural land would not qualify as business assets under category 1 (because it’s not used for a trade activities by an appropriate person), it can qualify for Hold-over Relief if it’s deemed as agricultural property for the purposes of Inheritance Tax.

The Inheritance Tax relief for agricultural land is limited to the agricultural value. Where the value of agricultural land is in excess of its agricultural value (for example, because of development possibilities), the excess does not qualify for relief. This restriction does not apply for the purposes of Hold-over Relief.

Category 4: Chargeable transfers for Inheritance Tax purposes

Hold-over Relief is available where the disposal is a chargeable transfer for Inheritance Tax purposes, but not a Potentially Exempt Transfer (PET).

The most common example of a PET is a gift by an individual to another individual.

The main examples of a lifetime chargeable transfer are when an individual:

• gives an asset to the trustees of a trust (other than a disabled trust)
• becomes entitled to the property of a relevant property trust

Cases with no liability to Inheritance Tax (because the value transferred is within the zero-rate band) qualify for Hold-over Relief.

The 10-yearly charge on the trustees of a relevant property trust is not taken into account because it’s not a disposal for CGT purposes.

Some transactions that are disposals for CGT purposes are specifically not chargeable transfers for Inheritance Tax. In such cases, Hold-over Relief is not available. These include:

• distributions within 2 years of death from a discretionary trust, set up by a will, or within 3 months of the start of the trust
• transfers within 3 months of a 10-yearly charge

Category 5: Certain occasions exempt from Inheritance Tax

The most important examples of cases exempt from Inheritance Tax, where Hold-over Relief is available, are transfers from:

• an accumulation and maintenance trust (which had that status before 22 March 2006), either to a qualifying beneficiary or on their death
• a trust for bereaved minors, either to them or on their death
• an 18 to 25 trust, either to the relevant beneficiary before their 18th birthday or on their death before the age of 18

Hold-over Relief is available for disposals that are chargeable transfers or PETs for Inheritance Tax purposes, most of which are concerned with historic buildings or works of art.

Find out more about disposals and their relationship with CGT, Hold-over Relief and Inheritance Tax. The Inheritance Tax Manual also covers some of these matters in more detail.

Transferors and transferees that qualify for Hold-over Relief

Hold-over Relief is only available where the transfer is made by an individual or the trustees of a settlement, to an individual or the trustees of a settlement.

No relief is available for transfers to the trustees of a settlor-interested settlement. A settlement is settlor-interested if:

• any of the following benefit in any way:
  • the settlor or their:
  • spouse
  • civil partner
  • child (minor)
  • step-child (minor)
• there are arrangements under which a settlor may acquire an interest

This exclusion does not apply where the trust is a disabled trust or a Heritage Maintenance Fund.

Any Hold-over Relief obtained in relation to transfers to the trustees of settlements, which become settlor-interested settlements within a certain period (starting immediately after the transfer), will be clawed back. This clawback period ends immediately before the sixth anniversary of the start of the tax year, following that in which the transfer is made. Ask HMRC or your tax adviser for more information.

In categories 1, 2 and 3, the transferee could be the personal representatives of a deceased person, or a company. Where the company is controlled by non-residents who are connected with the transferor, or where a non-resident transferor gifts an asset to a company which they also control, the relief is not available at all.

The transferee must generally be resident in the UK, although there is an exception to this where the asset gifted is an interest in UK land. Persons treated as resident outside the UK (by reason of a Double Taxation Agreement) may be excluded.

There’s no need for the transferor to be resident in the UK. The relief is available for trustees of non-resident settlements, where the chargeable gain would, or might otherwise be, charged on UK residents.

If you receive payment for the asset

If you receive something for the asset (such as money or another asset in exchange), and its value is greater than your base cost for the asset, then you’re immediately chargeable on the excess of the value of what you’ve received over the base cost (subject to allowable losses). Only the balance is held over.

This rule does not apply where a beneficiary becomes absolutely entitled as against the trustee.

Example 3

You sell a shop to your brother for £40,000. The shop was then worth £81,000. It cost you £23,000. The chargeable gain before Hold-over Relief is £58,000.

If you make a claim, then (subject to the availability of allowable losses) you’re chargeable at once on the proceeds minus the original cost (£40,000 - £23,000 = £17,000). The held-over gain is the shop worth minus the payment you received (£81,000 - £40,000 = £41,000).

Your base cost is the amount you’re allowed to deduct in your calculation of the gain. This may be affected by a previous hold-over claim.

If the transferee emigrates or dies

If the transferee is an individual who emigrates within 6 years of the end of the tax year in which the gift was made, and the asset has not been disposed of, then they will be chargeable on the held-over gain.

Where the asset is an interest in UK land, an election can be made for the charge to accrue instead when the property is eventually disposed of.

Different rules apply where the transferee is a trustee.

In certain circumstances, HMRC can collect unpaid tax from the transferor.

If the transferee is an individual who dies, then the normal exemption on death will apply.

Where the asset is transferred to trustees and the life tenant dies, the trustees do not have the normal exemption on the death, but the chargeable gain is restricted to the held-over gain. If this is an occasion of charge to Inheritance Tax, a claim can be made under category 4.

How to claim Hold-over Relief

You must complete a separate form for each disposal to claim Hold-over Relief. You can use photocopies.

The transferor and the transferee must claim jointly for Hold-over Relief, except where the claim is about a transfer to the trustees of a settlement where it’s claimed by the transferor only.

Due to coronavirus (COVID19) restrictions and until further notice, the form can be completed using digital signatures, rather than being physically signed by both transferor and transferee.

If you submit your Self Assessment tax return online, you can make the claim by attaching a scanned portable document format (PDF) of the completed form. Keep the original form, as HMRC may still ask to see it.

When to agree values

The held-over gain should be calculated and, if possible, agreed. For cases involving things such as unlisted shares or land, this may cause complicated and unproductive work.

Our Statement of Practice SP8/92 allows you to defer agreeing the values, providing there’s no liability to CGT on the disposal. However, this excludes cases where the liability arises because you received consideration from the person to whom you transferred the asset — in this case the liability is restricted. As long as the base cost represents actual expenditure and is not a value (in particular, a value at 31 March 1982), it’s not necessary to agree the value at the date of disposal.

If the base cost is a value, agreement of the value will be needed at both dates in these circumstances. The main conditions of SP8/92 are incorporated in the claim for Hold-over relief forms.

Where SP8/92 applies, the claim is admitted on the condition that the provisional values submitted with the claim are left to be agreed. They should be agreed at a later date between the claimants and HMRC, when and if it becomes relevant to the calculation as a result of further disposal by either claimant.

You need to enter estimated values in the tax return and the claim form. These should be your considered estimates but need not be formal valuations by an expert. They’re not considered binding. However, in the case of a transfer to a settlement, the claim to hold-over the gain is made by the transferor only and the trustees must be a party to a claim to defer the agreement of values.

How to get relief for gifts

This section applies to gifts to UK charities and certain bodies, such as:

• the National Gallery
• local authority-maintained art galleries and museums
• local authorities
• universities

Relief is also available for certain gifts to registered bodies, such as Community Amateur Sports Clubs. Find the full list in Schedule 3 Inheritance Tax Act 1984.

If the asset is an outright gift, or if the consideration you’ve received is less than your base cost, the disposal is treated as being at such a price that there’s no chargeable gain or allowable loss.

If the consideration received is greater than the base cost, your calculation is based on what you actually receive for the asset.

Example 4

You sell a shop to a charity for £50,000. The shop was then worth £100,000. It cost you £23,000. The chargeable gain is based on the sale price of £50,000 and is therefore £27,000.

Where a charity becomes entitled to trust property, except where any consideration has been given to anyone to achieve this situation, the trustees are treated as disposing of the property at a price that gives no chargeable gain or allowable loss.

Find out more about Income Tax relief for giving land, buildings, shares and securities to charity.

Other cases treated similarly

Similar treatment applies to gifts to:

• certain kinds of trusts for employees
• registered housing associations

How to get relief for gifts of heritage property

This relief covers works of art, historic houses and other property of sufficient standard to be regarded as part of the national heritage. There are reliefs for both CGT and Inheritance Tax. Exemption from CGT may be available for certain transactions for designated property. Find out more in the Inheritance Tax Manual.

Tax instalments where there’s liability on a gift

This section applies to gifts in the strict sense only, and to cases where a person becomes entitled to trust property. Where Hold-over Relief is not available, or only partial relief is available (see category 1 and category 2), and the asset is of the kind in this list, you may elect to pay the tax in 10 equal instalments.

The main types of assets are:

• land or an interest in land
• shares or securities of a company:
  • that gave you control before the gift
  • not listed on a recognised stock exchange

The unpaid instalments carry interest.

In certain circumstances the tax becomes payable immediately if the donee disposes of the asset.

Relief that can be claimed for Inheritance Tax paid on a gift

Inheritance Tax is not usually taken into account in calculating liability to CGT. In exceptional circumstances, it may be taken into account when the transferee disposes of the assets.

The transferee can claim the Inheritance Tax on the gift as a deduction in calculating the chargeable gain, but not to turn it into an allowable loss, provided that it was a disposal that was a chargeable transfer. Relief is not available in respect of the Inheritance Tax arising on the occasion of death.

This also applies when a transfer, that’s initially a PET, retrospectively becomes a chargeable transfer, provided that it was a case where a claim was made within categories 1 to 3.

In certain circumstances, CGT on a disposal can be taken into account for Inheritance Tax.

Contact

If you cannot find an answer to a question you have about Self Assessment in our guidance, you can contact Self Assessment: general enquiries.