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What’s the hold-over relief on gifts?

  • 4 min read
  • Last updated 26 Mar 2024

If your business uses, creates or benefits from any items of value, (i.e, a salon will most likely own plenty of styling chairs), you may be able to gift these items without having to pay capital gains tax. This is called the hold-over relief. Read on to find out more.

What do you mean by business assets? 

If your business holds something of value such as cash, raw materials or even equipment, this is called a business asset. Here are some examples of business assets:

  • Cash and cash equivalents (cheques, bank deposits etc.)
  • Marketable securities (financial assets that can easily be converted into cash such as Bitcoin)
  • Trademarks e.g the arched yellow ‘m’ is a trademark of McDonald’s
  • Stock or equipment from your business, i.e. desktops or telephones
  • Inventory (a complete list of goods and materials for sale)

Only a sole trader or a business partner will have power to give away or sell business assets. There may be exceptions to this (i.e. you’re the director of the company).

OK, now what is capital gains tax?

Capital gains tax (CGT) is a tax you pay when you sell an asset for a profit. You owe it when you make a profit more than £3,000 in the 2024/25 tax year. So if you sell an asset and cash in a profit of over £3,000 which is the CGT threshold, you’ll have to pay capital gains tax. You only pay CGT on the amount that is over the threshold.

You should also file a tax return, however, if you sell your asset for more than four times the CGT allowance, even if your profit is less than £3,000.

Now you might think you’re automatically off the CGT hook if you’re not selling for profit. But not exactly.

Capital gains tax may still apply even if you gift or sell an asset for less. Here’s how it works:

If the current value of the asset you’re selling is more than the price that you bought it for, this will also be considered a taxable gain. So you’ll be liable for capital gains tax.

If you want to know the current capital gains tax rates, read about this here.

🎁  FYI: If you’re gifting any asset to your spouse or to a registered charity, you won’t need to pay capital gains tax. 🎁

What’s the hold-over relief?

The hold-over relief means you may not have to pay capital gains tax when gifting an asset. 

If you give a business asset away or sell it for less than it’s worth, you may not have to pay CGT on this by claiming a tax relief. It’s called the hold-over relief.

Just think of it like this:

Your best mate wants to get their business started, so you offer them a hand. You gift them machinery. You bought the machinery for £16,000 but it is now worth £33,000.

Although you’ve not made a profit when gifting the machinery, there is still a gain of £17,000. So you’ll still be liable for capital gains tax. 

But because you’ve given a valuable business asset away to help your mate, you’ll be able to claim the hold-over relief and not have to pay capital gains tax on this gain.

Is the whole transaction tax-free?

No. Whilst you may not have to pay CGT on the gain, the person you gift to might have to pay up. This will be the case if they decide to sell the asset you’ve gifted them. 

For example, if your best mate decides to sell the machinery you’ve gifted them, they’ll have to work out:

  • The current price of the asset 💸
  • The gain once it’s been sold 📉

They’ll have to report this to HMRC and take care of the capital gains tax bill. So if anything, it’s actually a capital gains tax deferral.

Additionally, you’ll have to pay capital gains tax if you sell an asset for less than its current value, but for more than what you paid for it. You’ll still be able to claim the hold-over relief but will have to pay capital gains tax on the profit you earned that’s above the CGT threshold.

For example:

Instead of gifting your mate machinery, you sell it to him but throw in a £4,000 discount. It’s still worth £33,000 although you bought it for £16,000. So you sell it to your friend for £29,000.

Whilst you won’t pay CGT on the full £33,000 value of the asset, you’ll still have to pay tax on the profit earned.

So 🤓:

  • £29,000 – £16,000 = £13,000
  • CGT threshold = £3,000 in the 24/25 tax year
  • You pay tax on your £10,000 profit

Can I claim the hold-over relief if I’m gifting shares?

You’ll still be able to claim the hold-over relief if you gift certain shares of a company instead of a business asset. As long as the company meets these few requirements:

  • It cannot be listed on any market where you can buy bonds, stocks, etc.
  • The shares can’t be in a company you own
  • The company must (mainly) provide goods or services

How do I claim the hold-over relief?

The hold-over relief needs to be claimed and isn’t an automatic relief. 

To do this, you’ll need to fill in the reliefs for gifts and similar transactions helpsheet. Both you and the receiver of the gift will have to sign this form.

The final step is sending the form with your Self Assessment tax return. 

🚨 Before gifting, the business asset(s) must have been used only for your business. But if you used any of the assets partly for your business, you can still claim for a partial CGT exemption. 🚨

Can TaxScouts help me claim the hold-over relief?

You bet! 💁

Our accredited accountants can sort your Self Assessment tax return and claim the hold-over relief for you. Simple!

Find out more about TaxScouts’ services here.

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