Business asset gift relief ― restrictions

By Tolley

The following Personal Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Business asset gift relief ― restrictions
  • Restrictions to the amount of gift relief
  • Restrictions to the gain qualifying for relief
  • Interaction with the NRCGT rules
  • Interaction with other capital gains tax reliefs
  • Claiming gift relief
  • Payment of tax by instalments
  • When will the deferred gain come back into charge?

The conditions for claiming business asset gift relief (also known as gift relief or hold-over relief) and the mechanics of a claim for full relief are shown in the Business asset gift relief guidance note. It is recommended to read that guidance note before continuing.

This guidance note considers occasions where either the amount of gift relief is restricted or where the amount of the gain qualifying for gift relief is restricted. In either of these cases, this means a proportion of the gain remains chargeable following the gift relief claim, therefore this guidance note also considers the interaction of gift relief with other capital gains tax (CGT) reliefs.

The restrictions depend on the type of asset and are summarised in the Flowchart ― business asset gift relief restrictions.

Where the transferor or transferee is non-UK resident and the asset is chargeable under the non-resident capital gains tax (NRCGT) rules which apply to UK residential property, the principles of the relief may be modified. This is discussed below.

Restrictions to the amount of gift relief
Partial consideration

Where the transferee (also known as the donee) makes a payment to the transferor (also known as the donor) on the transfer but the amount is less than the market value of the asset, the gift relief claim may need to be restricted. In many instances, a sale at undervalue will result in a gain being left chargeable after a gift relief claim has been made.

TCGA 1992, s 165(7)

The gain remaining chargeable is the actual cash profit on the gift:

Chargeable gain = consideration received – (costs of acquisition or market value as at 31 March 1982 if later (MV82) + enhancement expenditure)

TCGA 1992, s 165(7)

This is illustrated by the following proformas.

Transferor’s gain:

More on Capital gains summary: