CG66450 - Chargeable Gifts: Introduction

What is a gift?

The word ‘gift’ describes a transfer from one person to another either for no consideration at all or otherwise than by way of a bargain made at arm’s length. It includes gifts in settlement, see CG35700. It also includes an occasion upon which a beneficiary becomes absolutely entitled as against the trustees of a settlement, see s71(1) and CG37000C.

Where a gift is made by way of a sale below market value, the date of disposal is determined by s28. The date of an outright gift is the date upon which the gift became effective. For a gift to be effective, it must be made in the form required by law. For example:

  • A gift of land requires a deed of conveyance.
  • A gift of shares must be accompanied by a signed stock transfer form.
  • A gift of a chattel, such as jewellery, can be effected simply by handing the article over to the recipient.

As an alternative, the person making the gift can execute a deed declaring that he or she holds the particular asset in trust for the recipient of the gift absolutely. This is effective for capital gains purposes from the date of signature.

Market value

Because a gift is not a bargain at arm’s length, the person making the gift (the “donor”) is treated as disposing of the asset at market value, see CG14480P.

However, this does not apply for gifts to:

  • Spouses or civil partners, see CG22000C
  • Charities, registered community amateur sports clubs or specified institutions
  • Employee trusts
  • Housing associations
  • The nation or various bodies, of assets considered to be national heritage

These are treated as made on a no gain/ no loss basis, see CG66620P.

The person receiving the gift (the “donee”) is treated as acquiring the asset at its market value at the time of disposal, if none of the above exceptions apply. Where these exceptions are relevant, and the transfer is an outright gift or for a consideration less than the allowable expenditure within s38, see CG15150P, it is treated as a transaction producing neither a gain nor a loss. For other disposals the market value rule is suspended and only the actual consideration is taken into account.

Gifts back

If you have a case where an asset which has been gifted is subsequently returned by the donee to the donor, you should deal with it on the basis that there have been two disposals:

  • one by the original donor to the original donee and
  • one by the original donee to the original donor.