Holdover relief claim

When you give away an asset for no consideration, or knowingly sell it for less than it’s worth, you will be charged capital gains tax based on the market value. However, you might be able to make a claim to hold this gain over depending on exactly what the asset is.

When is relief available?

There are numerous ways that the tax legislation permits a capital gains tax bill to be deferred. One of these is by means of holdover relief for gifts of business assets.

Where a qualifying business asset is either given away or knowingly sold at undervalue, there is a transfer “otherwise than at arm’s length”. This triggers the market value rule, meaning that a taxable gain can arise even though there are little or no proceeds.

Where the assets that are being transferred qualify as business assets, it is possible to make a joint election for holdover relief. Essentially, this transfers your element of the gain to the transferee by reducing their base cost by an appropriate amount. You then deduct the amount of relief from your gain.

This amount depends on how much consideration is given. If you don’t receive anything, relief is available in full on qualifying assets. However, if you do receive something, any actual cash gain is taxable immediately.

Conditions

This type of holdover relief is available if both you and the person the asset is given to make a claim, and the asset is of a qualifying nature. Detailed in the Capital Gains Tax Manual at CG66940, these include things like assets used in a trading business or unquoted shares in a trading company.

Using the claim letter

Use Helpsheet 295 to make the claim or you can use our template which prompts you for the relevant information.