Gift relief

By Tolley

The following Owner-Managed Businesses guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Gift relief
  • Tax treatment of gifts
  • Business asset gift relief
  • Qualifying assets
  • Claiming gift relief
  • Residence status of the donee
  • Payment by instalments
  • Gift relief on incorporation
  • Losses on disposals to connected persons
  • Interaction with entrepreneurs' relief

Tax treatment of gifts

A gift is a disposal for capital gains tax purposes.

TCGA 1992, s 17

Despite not receiving any money from the recipient, the donor could have CGT to pay. To calculate the donor’s capital gain, sale proceeds are deemed to be equal to the market value of the asset at the date of the gift. This rule applies whether or not the donor and the donee are connected persons. The deemed proceeds (ie market value) are also the donee’s base cost for CGT purposes.

Business asset gift relief

To mitigate this cash flow problem, in certain situations, business asset gift relief (also known as gift relief or hold-over relief) is available to defer the donor’s gain on gifts of qualifying business assets. Gift relief operates in a similar way to rollover relief. The gain on the donor’s gift is deferred by rolling over this capital gain against the base cost of the assets in the hands of the donee. Essentially the relief transfers the donor’s capital gain to the donee.

TCGA 1992, s 165

See Example 1.

Gift relief is restricted where a donor gives away shares of a company holding 'non-business assets' or where only part of an asset or holding period was used for business purposes. For information on this see the Gift relief – restrictions guidance note.

Note that if the gift was made prior to 6 April 2008 the donee’s base cost will equal the donor’s base cost plus indexation allowance.

Because the donee’s cost is the same as the donor’s cost, the market value of the asset at the date of the gift is largely irrelevant. HMRC has confirmed in SP 8/92, that where the donor and the donee are intending to make a gift relief claim and the whole of the capital

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