If you’re a business owner or have shares in a company, you may be curious about Gift Hold-Over Relief. This relief allows you to give away business assets or sell them for less than they’re worth without having to pay Capital Gains Tax or pay less tax than you would have. Instead, the person who receives the assets will be responsible for any tax due when they sell them. There are specific conditions for eligibility, depending on whether you’re giving away business assets or shares in a company. To claim this relief, you must submit a joint claim with the recipient of the gift. So, let’s dive in and explore the details of Gift Hold-Over Relief and how you can take advantage of it.
Gift Hold-Over Relief
Gift Hold-Over Relief is a Capital Gains tax relief that allows individuals to give away business assets or sell them for less than their market value while avoiding Capital Gains Tax or paying less. This relief can be beneficial for both the donor and the recipient, as it helps to facilitate the transfer of assets and encourages business growth and charitable giving.
What is Gift Hold-Over Relief?
Gift Hold-Over Relief is a tax relief program that allows individuals to transfer business assets or shares without incurring Capital Gains Tax. This means that the donor does not have to pay tax on any gain they may have made on the assets, and instead, the recipient is responsible for paying tax on that gain when they sell or dispose of the assets.
How does Gift Hold-Over Relief work?
When you give away business assets or sell them at a reduced price, the value of the assets for tax purposes is deemed to be the amount you paid for them, rather than their current market value. This means that any potential capital gain on the assets is effectively postponed until the recipient sells or disposes of them. At that point, the recipient will be liable for Capital Gains Tax on the gain they make from the original cost of the assets.
Tax exemption for gifts to close relatives or charities
In most cases, gifts to close relatives, such as your spouse, civil partner, or children, as well as gifts to charities, are exempt from Capital Gains Tax. This means that you can transfer assets to these individuals or organizations without incurring any tax liability. However, it is important to note that there may be other tax implications to consider, such as Inheritance Tax, so it’s always advisable to seek professional tax advice before making any significant transfers.
Eligibility
To be eligible for Gift Hold-Over Relief, the conditions for claiming relief depend on whether you are giving away business assets or shares.
Conditions for claiming relief for business assets
If you are giving away business assets, you must meet the following conditions:
- Be a sole trader or business partner, or have at least 5% of voting rights in a company (known as your ‘personal company’)
- Use the assets in your business or personal company
It is also possible to obtain partial relief if you only use the assets partly for your business.
Conditions for claiming relief for shares
If you are giving away shares, the shares must be in a company that is either not listed on any recognized stock exchange or is your personal company. Moreover, the company’s main activities must be in trading, such as providing goods or services, rather than non-trading activities like investment.
Working out the Relief
The key benefit of Gift Hold-Over Relief is that it allows you to give away assets without incurring Capital Gains Tax. The relief is calculated by considering the amount you paid for the asset as its value for tax purposes, rather than its current market value. This means that any gain you may have made on the asset is effectively postponed until the recipient sells or disposes of it.
However, it is important to note that if you sell an asset for less than its market value to help the buyer, you may still be liable to pay tax on the gain you made from the original cost of the asset. For example, if you sell a business premises worth £100,000 to your brother for £50,000, and it cost you £20,000, you would need to include the £30,000 gain (£50,000 minus £20,000) when calculating your total taxable gain.
How to Claim
To claim Gift Hold-Over Relief, you must make a joint claim with the person you are giving the gift to. It is important to submit your claim at the time you give them the gift. You will need to fill in the form provided in the relief for gifts and similar transactions help sheet and include it with your Self Assessment tax return. If you file your tax return online, you can upload a scanned copy of the form.
If you are a trustee and wish to claim Gift Hold-Over Relief, HM Revenue and Customs (HMRC) has additional information on the process and requirements for trustees. If you require assistance with your claim, it may be beneficial to contact HMRC or seek professional tax advice.