Gift Hold-Over Relief: Passing on Business Shares

Gift Hold-Over Relief and Trusts: Passing Shares to the Next Generation Without a Dry Tax Charge

Not every transfer of a business is a sale. Say an owner wants to pass shares to a family member, a long-serving successor, or into a trust — for less than full market value, or for nothing at all. HMRC still treats that transfer as though it happened at market value, for CGT purposes. Without relief, that creates a genuine problem: a tax charge on a gain the giver never actually received in cash.

How gift hold-over relief works

Gift Hold-Over Relief (Taxation of Chargeable Gains Act 1992, s165) solves this for qualifying business assets. That includes shares in a trading company where the giver holds at least 5% of voting rights, or shares in any personal company that isn’t listed.

Rather than the giver paying CGT on the market-value gain at the point of transfer, the gain gets “held over” — effectively passed to the recipient, who inherits the giver’s original base cost. No cash tax charge arises on the gift itself. Instead, the recipient will pay CGT on the full gain, including the portion that accrued during the giver’s ownership, when they eventually dispose of the asset.

Giver and recipient must jointly claim the relief; it isn’t automatic. Both parties need to understand what they’re agreeing to — the recipient takes on a latent tax liability, not a tax-free asset.

Where trusts fit in

Trusts add a layer of complexity worth flagging rather than resolving here. Gift Hold-Over Relief covers transfers into most trusts as well as to individuals, which is what makes trusts a workable vehicle for phased succession: retaining an element of control or flexibility over how and when the next generation actually benefits, rather than making an outright gift.

But trusts bring their own tax regime alongside CGT. Relevant property trusts face periodic and exit charges under the Inheritance Tax rules, and trust income attracts income tax on top. Both need modelling against the specific trust structure chosen, before assets go in rather than after.

The mistake to avoid

The recurring mistake is treating “no immediate tax charge” as “no tax planning required.” A held-over gain doesn’t disappear — it simply moves to whoever receives the shares. If that person later sells in circumstances where BADR or another relief doesn’t apply, the deferred tax bill can land at a worse rate and a worse time than if the giver had dealt with it at the point of the gift.

Frequently Asked Questions

Does gift hold-over relief mean no tax is due on a gift of shares? Not permanently. It defers the CGT charge rather than removing it. The recipient inherits the giver’s original base cost and will pay tax on the full accumulated gain when they eventually sell.

Can I claim gift hold-over relief on a gift to a trust? Yes, transfers into most trusts qualify, alongside gifts to individuals — but trusts carry their own periodic and exit Inheritance Tax charges that need separate consideration.

Is gift hold-over relief automatic? No. The giver and recipient must jointly claim it, using the relevant HMRC claim form.

How H&Hendricks Can Help

H&Hendricks models the full lifecycle of a gift or trust transfer — not just the point of transfer itself — so a family succession plan doesn’t quietly store up a larger tax bill for the next generation.