August 27, 2025Capital Gains TaxMerranti

Understanding Holdover Relief: A Smart Way to Defer Capital Gains Tax

When gifting assets such as shares, business property, or land, a major concern is often the capital gains tax (CGT) that may be triggered. However, in the right circumstances, Holdover Relief allows you to defer CGT entirely — sometimes for decades — until the recipient eventually sells the asset.

At Merranti Accounting, we help individuals, families, and business owners structure their gifts in a way that minimises tax and preserves wealth. If you’re thinking about transferring assets — to a child, a trust, or a business partner — understanding holdover relief is key.

What Is Holdover Relief?

Holdover Relief (also called gift relief) allows you to postpone paying CGT when you give away a qualifying asset. Instead of paying the CGT at the time of transfer, the gain is passed on to the recipient (donee), who will pay CGT when they eventually dispose of the asset.

To qualify, the transfer must be a gift, or involve little or no consideration (payment). If the donee pays more than the donor’s original cost, the excess reduces the relief available.

Types of Holdover Relief

There are two main types of holdover relief, and understanding the difference matters:

1. Business Asset Holdover Relief

Legislation: Taxation of Chargeable Gains Act 1992, s 165
This is the most common type, available when gifting:

Shares in a personal trading company
Assets used in a business (e.g. a building or land)
Interests in a partnership or sole trader business

The asset must be used in a trade, profession, or vocation, and either owned by the donor or their personal company (in which they hold ≥5% voting rights).

Exclusions:

Investment businesses (e.g. buy-to-let portfolios)
Passive property letting
Assets held in companies that are not trading

2. Trust-Related Holdover Relief

Legislation: TCGA 1992, s 260
This applies to any type of asset (not just business assets), but only in cases where the gift is immediately chargeable to Inheritance Tax (IHT) — typically:

Transfers into a trust
Transfers out of a trust to a beneficiary

Unlike s.165, this relief applies even if the asset is not used in a business — such as residential property, shares, or art.

But there’s a catch: if the trust is ‘settlor-interested’ — meaning the donor or their spouse/civil partner/minor children could benefit — then the relief isn’t allowed.

Key Conditions for a Valid Holdover Claim

To qualify for holdover relief:

The transfer must be a gift (or at least not a full market-value sale).
The transfer must meet the criteria of either s.165 or s.260.
Both parties must jointly elect to claim relief — using form HS295.
The relief must be claimed within 4 years of the end of the tax year in which the gift was made.

Case Study: Transferring Business Property to a Child

Julie owns a commercial workshop used in her sole trader carpentry business. She wants to gift it to her son, who will continue to run the same business.

The workshop qualifies as a business asset.
She can claim holdover relief under s.165.
There is no CGT at the time of the gift.
Her son inherits both the property and the deferred gain.
He will pay CGT only when he sells the workshop.

This simple move could defer tens of thousands of pounds in CGT, and potentially eliminate it altogether if the son qualifies for Business Asset Disposal Relief (formerly Entrepreneurs’ Relief) later on.

Special Cases

Agricultural Property Transfers

Farm buildings and agricultural cottages typically don’t qualify for s.165 relief on their own, especially if they’re let out. However, if the cottage is transferred with farmland, it may be eligible under Schedule 7 TCGA 1992.

Even if no IHT is payable because of the nil-rate band, the fact that a chargeable transfer exists is enough to allow holdover.

Woodland and Forestry

Managing commercial woodland qualifies as a “trade” under holdover relief rules, provided it is run with a view to profit. This means woodland assets can be transferred with no CGT upfront, subject to the same s.165 criteria.

Important Limitations & Anti-Avoidance Rules

There are several pitfalls to avoid:

Settlor-Interested Trusts: If the donor (or their spouse/civil partner/minor child) benefits from the trust, relief is denied.
Clawback Period (Trusts): If a trust becomes settlor-interested within 6 years, the relief can be revoked, and CGT becomes payable retrospectively.
Principal Private Residence Relief (PPR): If holdover relief is claimed on a residential property gift into a trust, PPR relief is no longer available on any future disposal — even if the beneficiary lives there.

Should You Use Holdover Relief?

Yes — if used properly. It’s particularly useful for:

Gifting business assets to children or family members
Transferring assets into or out of family trusts
Managing tax on early succession planning
Reducing IHT while deferring CGT

But every case is unique. The wrong trust setup or a gift to a connected person at the wrong value can derail the whole plan.

Final Thoughts

Holdover Relief is a gift in itself — allowing families and business owners to restructure ownership, assist the next generation, and preserve wealth for the long term. It does not avoid CGT, but it gives you control over when it becomes due.

It’s essential that any holdover claim is planned alongside other tax strategies, such as IHT planning, trust structuring, and potential Business Asset Disposal Relief.

Contact Us – Let’s Get Your Plan in Motion

At Merranti Accounting, we can help you:

Review your assets for holdover eligibility
Structure your family or business succession plan
Set up trusts with proper CGT/IHT integration
Prepare and file the right claims with HMRC