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HMRC internal manual

Capital Gains Manual

Relief for Gifts of Business Assets: Deferred Valuation

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Calculating the held-over gain will of course require a valuation of the asset that is gifted as, in the absence of the relief, its market value at the date of disposal would be substituted for the actual consideration received (if any) in the CGT computation. As valuations can be expensive both for customers to obtain and HMRC to verify, Statement of Practice 8/92 allows hold-over relief claims to be made in many circumstances without a valuation being arranged. It is important to note that form HS295 requires both the donor and the donee to consent to the valuation of the asset being deferred. This is the case even where the donee is the trustees of a settlement (and so would not need to counter-sign form HS295 otherwise), because it is essential that anyone whose liability may be affected by that valuation has agreed to the postponement.

The text of Statement of Practice 8/92 that explains the circumstances in which a valuation both is and is not required is set out below. The full text can be found on the website.

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

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  • once a claim made on this basis has been accepted by HMRC it may not be subsequently withdrawn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.

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

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.

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.

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

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 above, 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 it will 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.

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

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.