Holdover Relief on Gifts UK (2026): How to Defer Capital Gains Tax on Business Assets and Gifts into Trust

Holdover relief — sometimes called 'gift relief' or 'hold-over relief' — is a Capital Gains Tax election available under the Taxation of Chargeable Gains Act 1992 (TCGA 1992). It allows certain gifts to be made without triggering an immediate CGT charge on the donor. Instead, the CGT liability is 'held over' (deferred) until the recipient eventually disposes of the asset. Without holdover relief, a gift is treated as a disposal at market value (TCGA 1992 s.17) — the donor is treated as receiving full market value even though they receive nothing. If shares bought for £50,000 are worth £300,000 when given away, the donor would face CGT on a £250,000 gain. Holdover relief eliminates this immediate charge: (1) HOW THE RELIEF WORKS: when a joint election for holdover relief is made (both donor and donee must sign HMRC Form HS295), the disposal is treated as a no-gain/no-loss transaction for the donor. The donor has no CGT liability. The donee (recipient) acquires the asset at the donor's original base cost — not at market value. The deferred gain is effectively 'transferred' to the donee; (2) THE CONSEQUENCE FOR THE DONEE: the donee acquires the asset at the donor's original base cost. If the donee later sells the asset, they are liable for CGT on: (a) the gain that accrued while the donor owned it (the 'held-over gain'); plus (b) any further gain that accrued while the donee owned it. Example: donor bought shares for £50,000; worth £300,000 when given to donee; holdover election made. Donee's base cost: £50,000. Donee later sells for £400,000: CGT on £350,000 (£300,000 held-over gain + £100,000 gain in donee's hands). If the donee dies before selling, there is a further CGT uplift on death under TCGA 1992 s.62 — the held-over gain is extinguished if the donee dies holding the asset; (3) JOINT ELECTION REQUIREMENT: both the donor and the donee must sign the claim. HMRC Form HS295 (or the relevant self-assessment election). The election must be made within 4 years of the end of the tax year in which the gift occurred.

TCGA 1992 s.165 provides holdover relief for gifts of business assets. The qualifying categories are: (1) TRADING BUSINESS ASSETS: assets used in a trade, profession, or vocation carried on by: (a) the donor; (b) the donor's personal company; or (c) a partnership of which the donor is a member. The asset must be a 'business asset' — i.e., used in a qualifying trade at the time of the gift. This typically covers: plant and machinery; goodwill; business premises used exclusively for the trade. Property that is a business asset used in a trade (e.g. a workshop, office, warehouse) can qualify — but property held as an investment (e.g. a buy-to-let) does NOT qualify; (2) SHARES IN QUALIFYING TRADING COMPANIES: shares in an unquoted trading company (private company) qualify for s.165 holdover relief. The conditions are: (a) the company must be a trading company or the holding company of a trading group — investment companies and property companies do not qualify; (b) the company must be unquoted (AIM-listed shares may qualify as unquoted for this purpose); (c) the donor must own shares in the company (no minimum percentage); (3) SHARES IN PERSONAL COMPANY: shares in a company where the donor personally holds at least 5% of the voting rights (a 'personal company') AND the company is a trading company or holding company of a trading group. Listed companies can qualify if the 5% threshold is met; (4) AGRICULTURAL PROPERTY: land or buildings qualifying for Agricultural Property Relief (APR) under IHTA 1984 ss.115-124C qualify for s.165 holdover relief regardless of whether it constitutes a 'business asset' in the trading sense. Farmland farmed in-hand by the donor, or let land qualifying for APR, qualifies; (5) WHAT DOES NOT QUALIFY FOR S.165: (a) investment property (buy-to-let; commercial investment property); (b) shares in investment companies or property companies; (c) cash or bank deposits; (d) residential property not used in a trade; (e) listed shares in companies where the donor holds less than 5%. These exclusions mean that most gifts by individuals to family members of investment property or listed shares do NOT qualify for s.165 gift relief. This is a common planning pitfall — many donors assume gift relief applies to any gift, when in fact it is limited to qualifying business assets.

TCGA 1992 s.260 provides holdover relief for a different and broader category of disposals — specifically, disposals that immediately give rise to a chargeable transfer for Inheritance Tax purposes. This is principally gifts into trust: (1) S.260 QUALIFYING DISPOSALS: the main qualifying event is a 'chargeable transfer' for IHT purposes — typically: (a) a gift into a discretionary trust (which is a Chargeable Lifetime Transfer (CLT) for IHT); (b) a gift into a relevant property trust (discretionary or accumulation and maintenance trust). Transfers into interest in possession trusts created after March 2006 are also CLTs (and therefore s.260-qualifying) unless the trust is an IPDI or bereaved minor's trust; (c) ALSO qualifies: a gift by an individual for no consideration where the disposal is exempt from IHT; (2) S.260 VS S.165 — KEY DIFFERENCES: s.260 is broader than s.165 in that it applies regardless of the type of asset transferred — including investment property, listed shares, and cash placed into trust. If an asset is transferred into a discretionary trust: (a) that transfer is a CLT for IHT purposes (either potentially charged at lifetime IHT rate of 20% if above NRB, or with no lifetime charge if within NRB); (b) the donor can elect for s.260 holdover on ANY asset type — not just business assets; (c) the trustees acquire the asset at the donor's original base cost; (3) EXAMPLE — RESIDENTIAL INVESTMENT PROPERTY INTO TRUST: assume donor owns a buy-to-let worth £500,000 (base cost £150,000). Transferred into a discretionary trust: (a) s.165 would NOT apply — not a business asset; (b) s.260 CAN apply — the transfer is a CLT for IHT; the donor makes a holdover election; no CGT on the transfer; trustees take the property at £150,000 base cost; (c) BUT IHT may still be payable — if the transfer exceeds the NRB (£325,000 in 2025-26), lifetime IHT at 20% applies on the excess. Transfer of £500,000 − £325,000 = £175,000 × 20% = £35,000 lifetime IHT; (4) ANTI-AVOIDANCE — S.260(7) CLAWBACK: if the donee (or trustee) emigrates from the UK within 6 years of receiving the asset, HMRC can claw back the held-over gain. The held-over gain becomes immediately chargeable on the donor in the year the donee emigrates. This rule prevents holdover being used to give assets to non-UK resident recipients who will then sell free of UK CGT.

NO — holdover relief under s.165 cannot be claimed on gifts of residential property. This is one of the most important restrictions: (1) S.165 EXCLUSION FOR RESIDENTIAL PROPERTY: TCGA 1992 s.165(3) explicitly excludes residential property that has been the donor's only or main residence at any time during ownership when claiming hold-over under s.165. More broadly, s.165 requires the asset to be a 'business asset' — a residential investment property (buy-to-let) is not a business asset (TCGA 1992 s.165(2) and Schedule 7). Residential properties — whether main homes or buy-to-let investments — do not qualify for s.165 holdover relief; (2) S.260 EXCEPTION FOR RESIDENTIAL PROPERTY INTO TRUST: if a residential property is transferred INTO A TRUST (and the transfer is a CLT for IHT), s.260 holdover CAN apply — but only because the s.260 route applies to the CLT event, not to the asset type. The restriction only applies to s.165 directly; (3) WHAT HAPPENS IF YOU GIVE AWAY A BUY-TO-LET: if a buy-to-let is given to a family member outright (not into trust), neither s.165 nor s.260 applies. The gift is treated as a disposal at market value (TCGA 1992 s.17). The donor pays CGT on the full gain: (a) CGT rate: 24% (2024 Autumn Budget) on residential property gains; (b) AEA: £3,000; (c) Example: buy-to-let purchased for £120,000; now worth £450,000; gifted to child: deemed gain = £330,000 − £3,000 AEA = £327,000 × 24% = £78,480 CGT due, even though no cash received; (4) ALTERNATIVES FOR INVESTMENT PROPERTY: if you want to pass on residential investment property and defer CGT, the main options are: (a) Hold until death — CGT uplift (TCGA 1992 s.62) wipes out the pre-death gain; the beneficiary inherits at probate value and can sell without CGT on pre-death appreciation; (b) Transfer into a discretionary trust using s.260 holdover — but IHT may apply on the transfer if it exceeds the nil-rate band; (c) Give during lifetime — accept the immediate CGT, and the 7-year clock starts on the IHT PET; (5) PRINCIPAL PRIVATE RESIDENCE RELIEF: if the residential property qualifies for PPR relief (TCGA 1992 ss.222-226) as the donor's only or main home, the gain may be fully or partially exempt from CGT — in which case holdover relief is moot for that portion.

Holdover relief and Inheritance Tax planning can interact in complex and sometimes unexpected ways — including a 'double tax trap' that catches many donors: (1) LIFETIME GIFTS AS PETS AND HOLDOVER RELIEF: if a qualifying business asset (TCGA 1992 s.165) is given to an individual (not into trust), the gift is a Potentially Exempt Transfer (PET) for IHT purposes. No IHT arises at the time of the gift (unless the donor dies within 7 years). CGT holdover relief can be claimed — the donor has no immediate CGT. The recipient takes over the donor's original base cost. If the donor survives 7 years: PET becomes exempt from IHT; the recipient has the held-over CGT gain in their hands; (2) THE DOUBLE TAX TRAP (DEATH WITHIN 7 YEARS): if the donor dies within 7 years of making a gift with holdover relief, IHT may be payable on the full market value at the date of the gift (subject to taper relief IHTA 1984 s.7). But the recipient's base cost is still the donor's original base cost. Both IHT (on the gifted value) AND CGT (on the held-over gain when the recipient eventually sells) apply to the same underlying asset. This is the 'double tax trap' — using holdover relief on a PET that subsequently becomes chargeable due to early death. Relief: if the recipient sells the asset after the donor's death, HMRC allows a credit for IHT paid against the CGT charge (TCGA 1992 s.165A in limited circumstances) — but the credit mechanism is limited; (3) BPR PLUS HOLDOVER — OPTIMAL STRATEGY: the most favourable outcome for business owners is to hold qualifying assets to death: (a) IHTA 1984 s.105 BPR: 100% relief for unlisted trading company shares (below £1m combined cap); IHT = £0; (b) TCGA 1992 s.62: CGT rebasing on death; inherited at probate value; pre-death gain extinguished; (c) Result: neither IHT nor CGT on the business shareholding. This is far superior to lifetime gifts with holdover relief (which defers CGT to the recipient) unless BPR qualification is at risk; (4) GIFTS INTO TRUST AND IHT (S.260): when using s.260 holdover for transfers into a discretionary trust, the transfer IS a CLT — IHT at lifetime rate (20%) applies on the value above the NRB at the time of transfer. But once in the trust, the held-over gain does not trigger CGT until the trustees sell. The trust is also subject to 10-year periodic charges and exit charges under IHTA 1984 ss.64-69; (5) HOLD-OVER ELECTION TIMING: the 4-year election window applies (from end of tax year of gift). Do not wait to decide — once the 4-year window passes, the election is unavailable.