Holdover Relief (Gift Relief)

Key facts

Section 165 TCGA 1992 covers gifts of business assets (including shares in trading companies).
Section 260 TCGA 1992 covers transfers to trusts and certain other chargeable transfers.
The gain is deferred, not eliminated — the recipient takes on a reduced base cost.
Both the donor and recipient must make a joint election for s.165 relief.
Holdover relief is not available if the recipient is non-UK resident.

What Is Holdover Relief?

Holdover relief (also known as gift relief) defers Capital Gains Tax when you give away an asset rather than sell it. Without the relief, a gift would be treated as a disposal at market value, triggering a CGT charge even though you received nothing.^[1]

There are two main types of holdover relief, provided by different sections of the Taxation of Chargeable Gains Act 1992 (TCGA):

Section 165 — gifts of business assets
Section 260 — gifts on which inheritance tax is chargeable (including most transfers into trusts)

Section 165: Gifts of Business Assets

Section 165 allows holdover relief when you give away (or sell at below market value) the following types of business assets:^[2]

Assets used in your trade, profession, or vocation (sole trader or partnership)
Shares in a trading company (or holding company of a trading group), provided it is unlisted or you hold at least 5% of the voting rights
Assets owned personally but used by your company or partnership for trading purposes
Agricultural property qualifying for agricultural property relief from inheritance tax

How it Works

When a valid claim is made, the donor’s gain is “held over” to the recipient. In practice:

Without Holdover Relief	With Holdover Relief
Donor pays CGT on the gain at the date of gift	Donor pays no CGT
Recipient’s base cost = market value at date of gift	Recipient’s base cost = donor’s original cost
Recipient has no latent gain	Recipient inherits the donor’s gain (deferred gain)

Joint Election Required

Both the donor and recipient must sign a joint election on HMRC form HS295. The claim must be made within 4 years from the end of the tax year in which the gift was made.^[3]

Tip: A gift at undervalue (i.e. a sale at less than market value) can also qualify. The gain held over is the difference between market value and the actual consideration, while any gain up to the consideration received is taxable immediately.

Section 260: Gifts into Trusts

Section 260 provides holdover relief where a disposal gives rise to an immediately chargeable transfer for inheritance tax (IHT), or where the transfer is into a trust that is a “relevant property trust” (most discretionary trusts).^[2]

Key points:

The asset does not need to be a business asset — any asset can qualify
The transfer must be one on which IHT is chargeable (or would be but for a relief or exemption)
Common situations include transfers into discretionary trusts, where the IHT entry charge applies at 20% on values above the nil-rate band

Restrictions and Exclusions

Holdover relief is not available in certain circumstances:

Non-UK resident recipient: Relief under s.165 is denied if the recipient is non-UK resident, or emigrates within 6 years of the gift (the held-over gain is clawed back)
Non-business assets under s.165: Investment properties, cash, and quoted shares (unless you hold 5%+) do not qualify under s.165
Settlor-interested trusts: Relief under s.260 is restricted if the settlor or their spouse has an interest in the trust
Gifts to companies: Holdover relief does not apply to gifts to companies — other provisions (such as incorporation relief under s.162) may be relevant instead

Practical Example

James owns shares in an unlisted trading company, acquired for £50,000. They are now worth £250,000. He gifts them to his daughter, Sarah.

Step	Without Holdover	With Holdover (s.165)
Market value of shares	£250,000	£250,000
James’s base cost	£50,000	£50,000
James’s gain	£200,000	£0 (held over)
Sarah’s base cost	£250,000	£50,000
Sarah sells later for £300,000	Gain: £50,000	Gain: £250,000

The total gain taxed across both parties is the same (£250,000), but holdover relief lets James defer his portion until Sarah eventually sells.

Interaction with Inheritance Tax

Holdover relief defers CGT, but the gift may still have IHT consequences. A lifetime gift by an individual is a potentially exempt transfer (PET) for IHT, which becomes fully exempt if the donor survives 7 years. If the donor dies within 7 years, the gift may be brought back into the estate for IHT purposes — but the CGT holdover relief is not reversed.

Double tax relief: If both CGT and IHT arise on the same disposal (e.g. a failed PET where holdover relief was not claimed), the IHT attributable to the asset can reduce the CGT liability. This prevents the same gain being taxed twice.

Frequently Asked Questions

What is the difference between s.165 and s.260 holdover relief?

Section 165 applies when you give away business assets (e.g. shares in a trading company). Section 260 applies when assets are transferred to certain trusts (or there is a chargeable transfer for inheritance tax purposes). They can sometimes overlap, but different conditions apply to each.

Does holdover relief eliminate the capital gain permanently?

No. The gain is deferred, not eliminated. The recipient acquires the asset at the donor’s base cost (effectively inheriting the held-over gain). When the recipient eventually sells, they will be taxed on the full gain, including the held-over portion.

Can I hold over a gain to my spouse?

You can, but it is normally unnecessary. Transfers between spouses and civil partners are already treated as “no gain, no loss” transfers under s.58 TCGA 1992. Holdover relief is more useful when gifting to children, other family members, or trusts.

What if the recipient is not UK-resident?

Holdover relief under s.165 is not available if the recipient is not UK-resident at the time of the gift or becomes non-resident within six years. This is an anti-avoidance measure to prevent gains being exported to a non-UK tax jurisdiction.

Sources

Hold-over relief: gifts and similar transactions — GOV.UK
Capital Gains Manual: gift hold-over relief — HMRC
HS295 Relief for gifts and similar transactions — HMRC