Hold-over relief ( TCGA 1992 s 165) is an esteemed tax strategy that offers individuals, partnerships, companies, and trusts the opportunity to defer or minimize their capital gains tax obligations when transferring qualifying business assets and certain other assets. To ensure compliance with the requisite conditions and criteria for utilizing hold-over relief, it is highly recommended to seek the assistance of a competent tax advisor or accountant. By engaging in prudent planning, substantial tax savings can be realized, fostering an effortless transition of assets between parties.
What is Hold-Over Relief?
Hold-over relief is a provision in tax law that enables individuals and businesses to defer or reduce the capital gains tax liability that would ordinarily arise when they transfer certain assets. Instead of paying the full CGT immediately, the recipient of the asset “inherits” the transferor’s CGT liability, which becomes payable when they eventually dispose of the asset.
Who Can Use Hold-Over Relief?
Hold-over relief is available to the following entities and individuals:
Individuals:
- Gifts of Business Assets: Individuals can use hold-over relief when transferring business assets, such as shares in unincorporated businesses or land used in a business.
Partnerships:
- Gifts of Partnership Interests: Partners in a partnership can utilize hold-over relief when transferring their interests in the partnership to other partners or third parties.
Companies:
- Gifts of Business Assets: Companies can apply hold-over relief when transferring business assets, including shares in subsidiary companies.
- Intra-Group Transfers: Hold-over relief is available when assets are transferred between companies within the same corporate group, provided certain conditions are met.
Trusts:
- Transfers to Beneficiaries: Trustees can use hold-over relief when transferring assets to beneficiaries, subject to certain restrictions.
Conditions for Qualifying for Hold-Over Relief
To qualify for hold-over relief, several conditions must be met:
- Eligible Assets: Hold-over relief is typically applicable to business assets, including shares in unincorporated businesses, land used in a business, or certain company shares. Personal assets, such as a second home or artwork, do not qualify.
- Genuine Gifts: The asset transfer must be a genuine gift, and there should be no consideration or payment involved.
- Connected Persons: If the transfer is between connected persons, such as family members, specific rules apply, and hold-over relief may not be available in some cases.
- Use in a Business: For assets to qualify, they must have been used for the purposes of a trade, profession, or vocation carried on by the transferor.
- Election: The person making the gift must elect to claim hold-over relief. This election is irrevocable, meaning that the potential CGT liability is transferred to the recipient.
- Qualifying Time Frame: In most cases, the transfer must occur within seven years of the transferor’s death to qualify for hold-over relief. However, there are exceptions for gifts to certain trusts.
- Business Continuation: If a company transfers assets to another company, the receiving company must continue to use the assets in the same trade or business as the transferor.
How to claim
You must claim jointly with the person you give the gift to. Send your claim at the time you give them the gift.
Fill in the form in the relief for gifts and similar transactions helpsheet and include it with your Self Assessment tax return. If you send your tax return online, upload a scanned copy of the form.