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HMRC internal manual

Capital Gains Manual

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HM Revenue & Customs
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Gifts: Inheritance Tax: allowing hold-over relief

TCGA92/S260 (3)(4) and (5)

You allow hold-over relief by deducting an amount equal to the `held-over gain’ from the chargeable gain which would otherwise accrue to the transferor. The transferee’s acquisition cost is reduced by the same amount. The transferee may also be entitled to a deduction for any Inheritance Tax paid. See CG67050+.

  • No consideration received

The held-over gain is equal to the amount of the chargeable gain on the disposal. You calculate the chargeable gain in the usual way. If the disposal is before 6 April 2008 you give a deduction for any indexation allowance due if the taxpayer acquired the asset before 30 November 1993 but no deduction for taper relief. If the disposal is on or after 6 April 2008 hold-over relief takes priority over Entrepreneurs’ Relief. See CG64137.

Example A

A acquires an asset in 1995 and gifts this into a settlement in favour of his adult children in 2009. The asset cost £20,000 and had a value of £200,000 in 2009. The chargeable gain is £180,000. The hold-over claim reduces this to nil. The transferee’s acquisition cost is reduced from £200,000 to £20,000.

  • Consideration received

The held-over gain may be restricted if the transferor receives any consideration for the disposal. The transferor will be immediately liable to CGT on the amount of any consideration received that exceeds the allowable deductions in calculating the gain.

Example B

B acquires an asset in 1995, cost £20,000, and sells it to her brother for £50,000 in 2009 when it has a market value of £200,000. The consideration received exceeds the allowable costs by £30,000. The hold-over relief claim is restricted by this amount. The chargeable gain of £180,000 is reduced by £30,000 to give a held-over gain of £150,000. The transferor is charged on a gain of £30,000 ie £180,000 minus £150,000 and the transferee’s acquisition cost becomes £50,000 ie £200,000 minus £150,000.

  • Disposals before 6 April 2003

If the disposal is before 6 April 2003 and the transferor receives consideration and gets retirement relief the hold-over relief must be restricted if the excess of the consideration over the allowable costs is greater than the retirement relief. This restriction may still be relevant in considering the transferee’s acquisition cost.

Example C

C acquires an asset in 1995 cost £25,000. She sells it to her brother in 2002 for £55,000 when its market value is £200,000. C receives £20,000 retirement relief. The excess of the consideration received £55,000 over the allowable costs is £30,000. Normally the hold-over claim would be restricted by this amount but this exceeds the retirement relief by £10,000. The deduction from the chargeable gain is restricted by £20,000 to ensure that retirement relief is given first. The held-over gain becomes £155,000 ie £175,000 less £20,000. The chargeable gain of £175,000 is reduced by £10,000 retirement relief and £155,000 hold-over relief giving a chargeable gain of £10,000. The transferee’s acquisition cost becomes £45,000 ie £200,000 less £155,000.