Policy paper

Statement of Practice 8 (1992)

Published 26 October 1992

Introduction

1. This statement sets out HM Revenue and Customs (HMRC)’s practice for dealing with the valuation of assets in respect of which a claim to Capital Gains Tax gifts holdover relief has been made. It applies to both new claims to holdover relief and existing claims in relation to which valuation negotiations with HMRC may already have started.

Circumstances in which Capital Gains Tax gifts holdover relief is available

2. Subject to an appropriate claim, gifts holdover relief is available where:

• an individual makes a disposal not at arm’s length of:
  • an asset used for the purposes of a trade, profession or vocation carried on by the transferor, his personal company or a member of a trading group of which the holding company is the transferor’s ‘personal’ company - Taxation of Chargeable Gains Act (TCGA) 1992 section 165(2)(a) or
  • shares in a trading company or holding company of a trading group which are either unlisted or are in the transferor’s ‘personal’ company -TCGA 1992 section 165(2)(b) or
  • agricultural property as defined byInheritance Tax Act (IHTA) 1984 - TCGA 1992 Schedule 7 paragraph 1
• the trustees of a settlement make a disposal of certain settled property - TCGA 1992 Schedule 7 paragraphs 2, 3
• an individual or the trustees of a settlement make a disposal of an asset not at arm’s length which is either a chargeable transfer under IHTA 1984 or is one of a specified range of exempt transfers - TCGA 1992 section 260(2)

What is the heldover gain?

3. In the absence of a claim to holdover relief, TCGA 1992 section 17 would treat both the acquisition and disposal of the assets transferred to be for a consideration equal to their market value. Where a valid claim is made the effect is that the transferor’s chargeable gain is reduced to nil and the transferee’s acquisition cost is reduced by the amount of the heldover gain.

4. The heldover gain is the amount of the chargeable gain which would have accrued to the transferor, but for the claim to holdover relief. To compute the chargeable gain, and hence the heldover gain, it is necessary to establish the market value of the asset at the date of the transfer.

5. Where no other reliefs are involved, holdover relief will be available where the market value of the asset transferred exceeds the transferor’s allowable expenditure and the amount of indexation allowance due up to the date of disposal. If holdover relief is claimed and no consideration is paid then the transferee’s acquisition cost will be equal to the sum of the transferor’s allowable expenditure plus indexation to the date of transfer. In holdover relief cases, assuming none of the restrictions described in paragraphs 6 and 13 below apply, agreement of the market value of the asset at the date of transfer has no bearing on the immediate Capital Gains Tax liability of the transferor.

Position where consideration is paid by the transferee

6. Additional rules apply which affect the amount of the heldover gain where actual consideration is given to the transferor. Full holdover relief is only available if the actual consideration received does not exceed the transferor’s allowable expenditure (TCGA 1992 section 38). If the actual consideration received exceeds the transferor’s allowable expenditure on the asset, the holdover relief is restricted by that excess (TCGA 1992 sections 165(7) and 260(5)).

7. Where consideration is given, the transferee’s acquisition cost will be equivalent to the sum of the transferor’s allowable expenditure, the indexation allowance due to the date of disposal by the transferor and the gain immediately chargeable on the transferor.

Circumstances where in future market value at disposal need not be agreed with HMRC

8. Subject to the following conditions, HMRC will admit a claim for holdover relief without requiring a computation of the heldover gain in any case where the transferor and transferee complete the second page of the claim form attached to the Helpsheet 295. In particular this requires:

• a joint application by the transferor and the transferee
• provision of details concerning the asset and its history or alternatively a calculation incorporating informally estimated valuations if necessary and
• a statement that both parties have satisfied themselves that the value of the asset at the date of transfer was in excess of the allowable expenditure plus indexation to that date

The further conditions are that:

• once a claim made on this basis has been accepted by HMRC it may not be subsequently withdrawn
• if after acceptance by HMRC it emerges that any information provided or statement made by either the transferor or transferee was incorrect or incomplete, in each case their Capital Gains Tax position in relation to the asset will be computed in accordance with the relevant statutory provisions and assessments made as appropriate

It should be noted that for years 1996 to 1997 onwards all claims to holdover relief are to be made on the claim form attached to Helpsheet 295 or a copy of it.

9. Where, under the terms of this Statement of Practice, a claim is admitted without the heldover gain being computed, this does not mean that HMRC accept as factually correct or will subsequently be bound by any information or statements given by any person, whether expressly or by implication, in connection with the claim. Neither HMRC nor the claimants are bound in any way by any estimated values shown on the claim form or in any calculations.

Assets held on 31 March 1982

10. Unless actual consideration is given by the transferee, this practice will also apply to assets held by the transferor on 31 March 1982. It will only be necessary to agree a value at 31 March 1982 when the transferee disposes of the asset.

11. If the transferor has made an election under TCGA 1992 section 35(5), the transferee’s acquisition cost of the asset will be equal to the 31 March 1982 value plus indexation up to the date of the transfer. If there is no election under TCGA 1992 section 35(5), the transferee’s acquisition cost of the asset will be equal to the transferor’s original cost plus indexation up to the date of the transfer or the 31 March 1982 value plus indexation up to the date of transfer - whichever is greater.

12. If the transferee has given some consideration for the asset it will be necessary to agree the 31 March 1982 value immediately. This is so that the excess over the allowable expenditure - which is chargeable to Capital Gains Tax immediately - can be determined. However, HMRC will still be prepared to accept a holdover relief claim without undertaking a valuation as at the date of transfer.

Circumstances in which a valuation may be required

13. There are certain cases where TCGA 1992 Schedule 7 paragraphs 5, 6 or 7 restrict the amount of the heldover gain. These are cases where an asset has at some time during the transferor’s ownership been used for non-business purposes, or has only been used in part for business purposes, and cases involving shares etc, in a company which has non-business assets. This Statement of Practice cannot apply in any of these cases, because it is necessary to compute the chargeable gain before holdover relief. Otherwise, HMRC’s expectation is, subject to the circumstances described in paragraphs 8, and 10 to 12, that it will rarely be necessary to determine the market value at the date of the gift. However, a valuation may become necessary as a result of the interaction of the heldover gain with other Capital Gains Tax reliefs. It is not expected that even in these cases will it be necessary to establish the market value immediately. Instead, it is more likely that a valuation will not be required before, for instance, a later disposal of the asset by the transferee. The following paragraphs cover the more common circumstances.

Retirement relief

14. Holdover relief is not available in the case of a disposal of an asset to the extent that any gain benefits from retirement relief (TCGA 1992 section 165(3)(a), (b), TCGA 1992 section 260(5) Schedule 6). This means that holdover relief may be claimed if the market value at the date of transfer is at least equal to the sum of the transferor’s allowable expenditure, indexation allowance to the date of disposal and the retirement relief due.

15. Unless requested by the claimants, the agreement of the market value of the asset will be deferred until either:

• it is necessary to determine the quantum of the retirement relief due - (usually this will be when the transferor makes another disposal which attracts retirement relief)
• it is necessary to determine the transferee’s cost of the asset

Relief in respect of deferred charges on gains before 31 March 1982 (TCGA 1992 Schedule 4)

16. In the case of an asset acquired before 31 March 1982 and transferred before 6 April 1988 it is necessary to compute any heldover gain in order to give the benefit of the 50% reduction available under TCGA 1992 Schedule 4. To the extent that the market value of the asset at the date of transfer has not already been determined HMRC are prepared to defer the need for a valuation until disposal by the transferee.

Time apportionment in the case of assets held on 6 April 1965

17. In the case of an asset held at 6 April 1965 chargeable gains and allowable losses arising on disposal are ‘time apportioned’ so that only those accruing since 6 April 1965 are recognised for Capital Gains Tax purposes. If holdover relief is claimed in relation to the gift of such an asset it is always necessary to agree a valuation at the date of transfer in order to apply time apportionment to the deferred gain. HMRC are content to defer this valuation until the asset is disposed of by the transferee.

Application of Statement of Practice to existing holdover relief claims

18. In relation to existing holdover relief claims, valuation negotiations with HMRC may have commenced, but not yet been completed. Taxpayers who want to take advantage of the practice in relation to such claims should write to the Inspector of Taxes to whom they were submitted.

Press releases etc

IR Tax Bulletin April 1997 page 417 (confirms that Statement of Practice 8 (1992) continues under self assessment much as before, and explains the introduction of a new claim form).

Note: this statement was amended by IR 131 Supplement (November 1998).