C3.512 Holdover relief for gifts of business assets—gifts to settlor-interested settlements
Avoidance schemes which sought to transfer a gain to the trustees of a settlement by means of holdover relief1, with the trustees able to use allowable losses or a tax relief on a subsequent disposal are blocked by TCGA 1992, ss 169B–169G2 which operate to deny or claw back holdover relief. Some schemes sought to obtain private residence relief, as to which see C3.1716, which deals with the anti-avoidance provisions in cases where there is no settlor-interest in the settlement.
Commonly, the settlor would have an interest in the settlement, and consequently had access to the proceeds of the tax-free disposal as indicated in the following example.
Kevin had a second residence (ie not his main residence) with a market value of £500,000. If he sold it a gain of £300,000 would have arisen.
Instead, Kevin transferred the house into a discretionary settlement in which he had an interest, claiming holdover relief under TCGA 1992, s 260 (see C3.1601). The trustees, under the terms of the settlement, allowed Kevin's son, Brian, to occupy the house as his main residence.
Six months later, Brian vacated the house and the trustees sold it for £500,000 and claimed private residence relief to exempt the gain of £300,000. Kevin would have been able to benefit from the proceeds in accordance with the nature of his interest in the settlement.
Gifts to settlor-interested settlements—when the anti-avoidance provisions apply
The legislation to deny holdover relief applies when a person