It is more or less well known that substantial gifts of cash can be given to beneficiaries free of inheritance tax, provided the donor lives for a further seven years.

Much less familiar is the liability for capital gains tax of gifts of property and shares, irrespective of whether IHT is chargeable.

This CGT liability, which is assessed on the increase in value between purchase and the date of the gift, is payable by the donor unless capital tax relief (or ‘holdover relief’) is claimed.

This relief transfers liability to the donee so that they only pay the CGT when the asset is sold. Although it does not exempt the gain from taxation, it does defer the tax payment until a later date.

Holdover relief is not available on the gifting of all types of assets, but may be claimed for:

  • gifts of business assets;
  • gifts of unlisted shares, for example in trading companies;
  • gifts of agricultural land;
  • gifts that are chargeable transfers for IHT purposes; and
  • certain types of gifts that are specifically exempted from IHT.

In addition to these assets, other assets such as a holiday home can be gifted too, but with some tricky conditions attached.

To qualify for the CGT holdover it is necessary to gift the property to a trust, not an individual. In this instance, consideration also needs to be given to IHT as transfers to a trust are chargeable lifetime transfers.

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