CG66887 - Relief for Gifts of Business Assets: Deductions for Inheritance Tax Paid

Certain gifts that qualify for hold-over relief may also be chargeable to Inheritance Tax, either immediately (as a chargeable lifetime transfer, see IHTM04057) or at a later date (as a failed potentially exempt transfer, see IHTM14511). If this is the case, TCGA92/S165(10) provides the donee with a deduction equal to the Inheritance Tax previously paid on the gift when they in turn dispose of the asset, although this deduction cannot create a loss.

As a potentially exempt transfer may take up to seven years before it ‘fails’, or the charge to Inheritance Tax may otherwise be varied, TCGA92/S165(10) and (11) allow adjustments to be made to the Capital Gains Tax computation outside of the usual time limits for doing so. This may result in the need for a further assessment to Capital Gains Tax or the taxpayer may be entitled to a repayment.

These rules apply equally to claims to relief where the gift is of a direct or indirect interest in UK land to a non-UK resident, under TCGA9/2/S167A(5).