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CGT gift relief

Adrian Mooy - Friday, February 28, 2020
Gift relief (referred to as ‘holdover relief’) is available when a taxpayer has either gifted a business asset (or sells it ‘other than at arm’s length’), or disposes of an asset to a trust where the transfer is immediately chargeable to IHT. The relief does not exempt the gain completely; HMRC will still eventually receive the tax due on the gain on the disposal of the asset. It does, however, change who pays the capital gains tax (CGT) and the timing of the payment.


The identity of the ultimate payee changes from the donor of the asset to the donee. The timing changes from the date of the gift to the date the asset is subsequently disposed of by the donee.


Gift relief is extremely useful, as irrespective of Whether the gift is made to a connected party or to a non-connected party in a ‘not at arm’s length’ transaction, the legislation dictates market value to be used (instead of the actual consideration (if any)) in the CGT computation. If this leads to a gain, the gain is taxable and any CGT will be due to be paid by 31 January in the year following the tax year of the disposal.


The issue is, in the case of a gift, no proceeds have been received, and in the case of a ‘not at arm’s length’ transaction, full market value has not been received; so there may be a cashflow issue associated with the payment of the tax.


Gift relief, in allowing the gain to be passed over to the recipient of the asset and not chargeable until they dispose of the asset, prevents this cashflow issue.
Two sections of the CGT legislation provide for gift relief. The first (TCGA 1992, s 165) allows gift relief for certain specific business assets. This is desirable for the economy as it is not in the government’s interest for CGT burdens to prevent the transfer of business assets, for instance, to the next generation. Gift relief must be claimed and the claim must be agreed and signed by both the donor and the donee.


The second form of gift relief is linked to inheritance tax (IHT) (TCGA 1992, s 260). This section allows gift relief for any asset, not just business assets. The conditions are that there must be both a charge to IHT and CGT on the gift/transfer. An example of this may be placing an asset into a discretionary trust. If the gift was made in the donor’s lifetime, this would normally be an immediately chargeable transfer for IHT purposes, and if a capital gain arises at the same time, the gain can be passed to the trustees and deferred for them to pay once they dispose of the asset in the future.


Gift relief under this section too must be claimed; but approval is required only from the settlor of the trust.
Gifting business assets is a crucial part of the succession of a family business. Gifting into a trust could incur IHT as well as CGT. Ensuring you are aware of the possibility to defer the gains in these situations may help enormously with the cashflow burden of a gain where no proceeds are received.


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