Holdover Relief Inheritance Tax UK: CGT Holdover on Gifts, Trusts, and Business Assets (2026)
Holdover relief defers CGT on gifts of qualifying business assets (s165 TCGA 1992) and on gifts into discretionary trusts (s260 TCGA 1992). Combined with BPR, it allows a qualifying business to pass to the next generation with zero IHT and zero immediate CGT. Holdover is not available on PETs (gifts to individuals) unless the asset qualifies under s165 — and a claw-back applies if the donee emigrates within 6 years.
| Provision | Eligible Assets | Transfer Type | Notes |
|---|---|---|---|
| s165 TCGA 1992 | Qualifying business assets: sole trader/partnership assets; unquoted trading company shares (≥5% voting or personal company ≥25%); APR agricultural property | PETs to individuals OR into trust | Defers CGT on qualifying business assets — available even for PETs |
| s260 TCGA 1992 | Any asset (no restriction to business assets) | CLTs only — discretionary trusts or other immediately chargeable transfers | Defers CGT on CLTs; NOT available on PETs; trust then holds asset at held-over base cost |
| s260 TCGA 1992 (trust disposition) | Any asset exiting a trust where exit charge applies | Trust exit when exit charge arises | On exit charges, s260 can defer CGT on distribution from discretionary trust to beneficiary |
| s165 + s260 combined | Qualifying business assets transferred into a discretionary trust | CLT into trust of qualifying business assets | IHT reduced/eliminated by BPR; CGT deferred by s260 (CLT route) or s165 (business assets) |
| No holdover | Investment property; listed shares; cash | PET (gift to individual — not CLT) | CGT arises on gift at market value (s17 TCGA); no holdover; both IHT and CGT must be managed |
| No holdover | All held-over assets | Previously held over under s165 or s260 | Claw-back under s168 TCGA: held-over gain charged on donor (not donee) on emigration |
s165 TCGA 1992: business asset holdover — qualifying trade assets (sole trader/partnership), unquoted trading company shares (including AIM; donor ≥5% voting or ≥25% 'personal company'), APR agricultural property. Available on PETs and CLTs. s260 TCGA 1992: holdover on CLTs only — discretionary trust transfers and other immediately chargeable transfers. Not available on PETs to individuals. s168 TCGA: claw-back on donee emigration within 6yr. s62 TCGA: death uplift (no CGT on death). BPR: ss103-114 IHTA 1984. BPR/APR £1m cap from April 2026 (IHT only; does not affect CGT holdover). Election for holdover: joint HMRC form HS295 (donor and donee within 4yr of tax year of gift).
Holdover Relief and IHT: Complete Guide
What is holdover relief and how does it interact with IHT planning?
Holdover relief (gift relief) is a CGT deferral available on certain gifts — it allows the gain that would otherwise arise on a gift to be 'held over' so that neither the donor nor the donee pays CGT immediately. Instead, the donee inherits the donor's original CGT base cost (acquisition price), and the deferred gain only crystallises when the donee eventually sells the asset. The holdover election is made jointly by donor and donee, using HMRC form HS295. In IHT planning, holdover relief is particularly relevant when: (a) a business owner is planning to pass their business to the next generation and wants to avoid triggering both IHT and CGT simultaneously; (b) a settlor is transferring assets into a discretionary trust (which is a CLT for IHT) and wants to defer the CGT on any gain in the asset. Two separate statutory provisions provide holdover relief: s165 TCGA 1992 (business asset holdover) and s260 TCGA 1992 (holdover on CLTs). Understanding which applies — and when — is essential for combined CGT and IHT planning.
Section 165 TCGA 1992 — holdover on gifts of qualifying business assets
S165 TCGA 1992 provides holdover relief on gifts of qualifying business assets made to individuals or into trust. Qualifying assets under s165: (1) Assets used in the qualifying donor's trade — sole trader or partnership trade assets (machinery, goodwill, trade premises, etc.); (2) Shares in an unquoted trading company — including AIM-listed shares (AIM is not a recognised stock exchange for TCGA purposes in this context) where the transferor holds at least 5% of the voting rights (or is an officer or employee of the company); (3) Shares in any trading company where the transferor holds at least 25% (a 'personal company'); (4) Agricultural property that qualifies for APR under IHTA (even if not also used in a trade). S165 holdover is available on PETs to individuals (unlike s260 — see below) — making it particularly valuable for lifetime transfers of business assets to children or grandchildren. IHT interaction: where the gift is a PET that becomes a chargeable transfer on the donor's death within 7 years, the IHT position is assessed on the market value of the gift at the date of the gift. BPR (ss103-114 IHTA 1984) may eliminate or reduce IHT on qualifying business assets — and CGT holdover under s165 can simultaneously defer the CGT. The donee's CGT base cost is market value on the date of the gift minus the held-over gain. If the full gain is held over, the donee effectively has the donor's original cost as their CGT base.
Section 260 TCGA 1992 — holdover on CLTs (gifts into discretionary trusts)
S260 TCGA 1992 provides holdover relief specifically for gifts that constitute immediately chargeable transfers (CLTs) for IHT purposes. A gift into a discretionary trust is the most common CLT — this triggers: (1) an immediate IHT entry charge of 20% on the value above the available NRB on a lifetime basis (typically above £325,000 in a 7-year period); and (2) a right for the settlor to claim s260 holdover relief on any CGT gain in the assets transferred. Unlike s165, s260 does not require the assets to be business assets. Any asset transferred by way of a CLT qualifies for s260 holdover — shares in a listed company, investment property, cash investments, bonds, etc. However: (1) the s260 holdover only defers the gain — the trust pays CGT on the held-over gain when it disposes of the assets; (2) a CLT above the NRB threshold triggers an immediate IHT entry charge at 20% above the threshold; (3) the periodic charge (s64 IHTA 1984 — up to 6% every 10 years) and exit charge (s65 IHTA 1984) apply to discretionary trusts. The interaction with IHT: where BPR applies to the gift into the trust (qualifying business assets), the IHT entry charge may be reduced or eliminated by BPR — and the CGT gain is simultaneously deferred by s260. But caution: if the home is placed in a discretionary trust, the RNRB (s8D IHTA 1984) is LOST on the deceased's estate — up to £70,000 per person in additional IHT. This is a common trap: BPR eliminates the IHT on the business assets in the trust, but the RNRB loss on the home is an unintended additional cost.
Why holdover relief is NOT available on PETs to individuals (and the workarounds)
A common misconception: holdover relief under s260 TCGA is NOT available on PETs (potentially exempt transfers for IHT) — because a PET is not immediately chargeable (it is only chargeable if the donor dies within 7 years). S260 requires the transfer to be a CLT — i.e. immediately subject to IHT entry charges. A PET to an individual is not a CLT, so s260 is not available. Result: a gift of investment property or shares (non-qualifying for s165) to a child triggers CGT on the full gain at the date of the gift (s17 TCGA 1992 — disposal at market value), with no holdover available. The two workarounds: (1) S165 TCGA — if the asset qualifies as a business asset (sole trader/partnership assets, unquoted trading company shares), holdover is available under s165 even though the gift is a PET; (2) Gift via trust — structure the gift as a gift into a discretionary trust (CLT) rather than a direct gift to an individual — this triggers s260 holdover. But the CLT route: (a) may trigger an IHT entry charge above the NRB; (b) the trust then holds the asset, not the child directly; (c) the trust's distributions are later exit charges. The trade-off: a direct PET to a child avoids IHT entry charges but risks CGT; a CLT into trust defers CGT but triggers entry, periodic, and exit charges.
CGT holdover claw-back rules and planning traps
Holdover relief can be withdrawn ('clawed back') in certain circumstances: (1) Emigration claw-back (s168 TCGA 1992): if the donee (who received the held-over asset) emigrates and becomes non-UK resident within 6 years of the gift, the full held-over gain is brought into charge on the donor (not the donee). This is a significant risk for high-value gifts to children who may move abroad — if the child emigrates, the donor faces a CGT bill on the held-over gain. The 6-year clock runs from the date of the gift; (2) Ceasing to be a qualifying asset (s166 TCGA 1992): if the asset ceases to qualify (e.g. the company ceases to trade, or the donee uses the business asset for a non-trade purpose) within a 'material time', the holdover can be partially withdrawn; (3) Holdover on a debt element: if the gift involves consideration (e.g. the donee assumes a mortgage), holdover only applies to the element that is genuinely a gift — CGT at market value applies to the consideration received. Planning points: for gifts to children planning to move abroad, consider a trust structure (where the trustees are UK-resident and the claw-back risk is managed); for business assets, document the qualifying business use at the date of the gift and maintain records; for s260 holdover on trust transfers, ensure the trustees understand that they hold the asset at the donor's base cost (less any held-over gain is absorbed by them on future sale).
Combining BPR and holdover for business succession planning
For business owners planning succession, the combination of BPR and holdover relief is extremely powerful: (1) BPR (ss103-114 IHTA 1984) can eliminate or reduce IHT on qualifying business assets (sole trader, partnership, unquoted shares — 100% BPR; listed controlling interest — 50% BPR; land used in a business — 50% BPR); (2) Holdover relief (s165 TCGA) defers the CGT gain on the same qualifying business assets transferred by gift. Combined: no immediate IHT; no immediate CGT — the next generation inherits both the asset and a deferred CGT liability. The deferred CGT does not arise until they sell. If they continue to run the business: no sale, no CGT. Eventually when they do sell: CGT at their prevailing rates on the donee's base cost (donor's original cost). On death: assets transferred on death are uplifted to market value for CGT (there is no CGT on death in the UK — s62 TCGA 1992 — 'death uplift'). This means the deferred gain can be washed out entirely on death. April 2026 BPR/APR cap (£1m at 100%): the £1m cap affects the IHT position of the gift (BPR only eliminates IHT up to £1m of qualifying assets above the cap, with 50% relief = 20% effective IHT on the excess). The CGT holdover under s165 is not limited by the IHT BPR cap — it is purely a CGT provision with no cap. So: a business worth £3m — BPR covers £1m at 100%, then 50% relief on £2m = £400k IHT; s165 holdover defers the full gain on the £3m worth of business assets.
Frequently Asked Questions
What is holdover relief and how does it work for inheritance tax planning?
Holdover relief (gift relief — s165 and s260 TCGA 1992) defers CGT on a gift by reducing the donee's CGT base cost by the held-over gain, rather than charging CGT on the donor immediately. In IHT planning, holdover is particularly useful when gifting qualifying business assets (s165 — eligible even for PETs to individuals) or transferring assets into a discretionary trust (s260 — eligible for CLTs only). Combined with BPR (ss103-114 IHTA 1984), the same gift can eliminate IHT (via BPR) and defer CGT (via holdover) — the next generation inherits the business with no immediate IHT or CGT bill. The deferred CGT is absorbed on death via the death uplift (s62 TCGA 1992) if the donee holds until death.
What is the difference between s165 and s260 holdover relief?
S165 TCGA 1992 (business asset holdover): available on gifts of qualifying business assets (sole trader/partnership assets; unquoted/AIM trading company shares where donor holds ≥5% voting; personal company shares ≥25%; APR agricultural property). Available on PETs (direct gifts to individuals) and CLTs (into trusts). S260 TCGA 1992 (holdover on CLTs): available on any asset transferred by way of a CLT — i.e. a gift into a discretionary trust or other immediately chargeable transfer. NOT available on PETs to individuals. Key: if the gift is a PET (to a child or grandchild), s260 is not available; only s165 applies (if the asset qualifies). If the gift is into a discretionary trust (CLT), s260 applies regardless of whether the asset is a business asset.
Can you use holdover relief to avoid CGT on gifts to children?
Only if the asset qualifies under s165 TCGA 1992 (business assets) — a direct gift of investment property or listed shares to a child is NOT eligible for holdover (it is a PET; s260 requires a CLT; no s165 qualification for investment assets). For qualifying business assets (sole trader/partnership, unquoted trading company shares): s165 holdover is available on a direct gift to a child (PET). The child's CGT base cost is reduced by the held-over gain. CGT is deferred until the child sells. If the child holds until death: CGT death uplift (s62 TCGA 1992) eliminates the deferred gain entirely.
What is the CGT holdover claw-back rule?
Holdover relief is withdrawn ('clawed back') if the donee (the person who received the asset) emigrates from the UK within 6 years of the gift (s168 TCGA 1992). On emigration: the full held-over gain is brought into charge on the donor — not the donee. This is a significant risk for gifts to children who may move abroad. Planning: if the child is likely to emigrate, consider using a trust (with UK-resident trustees) rather than a direct gift — the claw-back risk sits with the donor personally, not the trustees.
Can BPR and CGT holdover both apply to the same gift?
Yes — they are separate provisions operating on different taxes. BPR (ss103-114 IHTA 1984) reduces or eliminates IHT on qualifying business assets. Holdover relief (s165 TCGA 1992) defers CGT on the same qualifying business assets. For a gift of qualifying business assets: BPR eliminates IHT (subject to the £1m BPR/APR combined cap from April 2026); s165 holdover defers CGT — the donee holds the asset at the donor's base cost, with no CGT until sale. If the donee holds until death: CGT death uplift (s62 TCGA 1992) washes out the deferred gain. In theory: a qualifying business asset can pass to the next generation with zero IHT (BPR) and zero CGT (holdover, then death uplift) — one of the most efficient succession routes in UK tax law.
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