B9.117 Incorporation—hold-over relief
The hold-over relief for business assets1 (see Division C3.5) applies to disposals otherwise than by way of bargains at arm's length, so it is available in respect of both gifts and transfers at undervalue.
Subject to the restrictions described in C3.504, if no consideration is received for the disposal, or the consideration received is less than the transferor's allowable expenditure2, the full amount of the gain that would otherwise have been chargeable may be held-over. In other words, no chargeable gain arises at the time of the disposal, but the amount of the gain that would have been chargeable but for the relief is deducted from the transferee's base cost3. The held-over gain is therefore automatically brought into the capital gains computation on any subsequent disposal of the asset by the transferee.
Hold-over relief can be used as an alternative to incorporation relief where a person transfers his business to a company.
Technically, hold-over relief only provides a tax deferment. In practice, the deferment is permanent unless and until the transferee (ie the company on incorporation) disposes of the transferred assets (ie business assets) in the future. If, on a subsequent sale of the business, it is the shares that are sold, the held-over gain will remain locked into the company because the base cost of the