COURSE: ACCA – TAXATION (TX)

Lecture Topic: Capital Gains Tax – Gift Holdover Relief

1. Gift of an asset

A gift is a chargeable disposal for CGT purposes (which means that you may have to calculate a gain or loss on the
disposal).

If a disposal is made by way of a gift, there are several implications for both the donor of the gift and the recipient.

(a) The donor is treated as though he/she sold the asset at market value.

Therefore, to compute the gain or loss, the market value of the gift is used as the disposal consideration in the
capital gains computation.

(b) The recipient is treated as though he/she purchased the asset at market value.

Therefore, this market value will be used as the allowable cost when the recipient eventually disposes of the asset.

2. Basic Gift Holdover Relief

(a) If gift holdover relief is claimed, then the donor’s gain is reduced to ‘nil’ by the gift holdover relief.

(b) The recipient’s ‘acquisition cost’ (which would have been the market value of the asset) is then reduced by the
gift holdover relief (that was claimed by the donor).

3. Sale at an undervalue (undervalue means less than market value)

o Where there is a sale at undervalue, the market value of the gift is once again used as the disposal consideration in
the capital gains computation.

o ‘Gift Holdover Relief’ is also available where a disposal is made by way of a sale at undervalue.

o In these circumstances any excess of sales proceeds received over the original cost of the asset will be
immediately chargeable. The gift holdover relief is therefore reduced by this amount.

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4. Gift of Shares (in the donor’s personal company)
If the gift is of shares in the donor’s personal company (see note 5 below), then the gift holdover relief is computed as
follows:

Gain × Value of Chargeable Business assets (CBA)

Value of Chargeable Assets (CA)

Chargeable Business Assets (CBA)

These are defined as assets used for the purposes of a trade, profession or vocation, other than those assets on the disposal
of which no chargeable gain arises (i.e. stock, debtors, cash etc.) and are specifically stated to include goodwill AND to
exclude shares, securities or other assets held for investment.

Chargeable Assets (CA)

A chargeable asset is any asset that if sold would give rise to a chargeable gain (or an allowable capital loss).

5. Conditions for Gift Holdover Relief be claimed

(i) The gift must be of qualifying business assets. These are:

a) Assets used in a business carried on by the donor or by his/her personal company (a personal company is one
in which the individual owns at least 5% of voting shares).

b) Shares in a trading company not quoted on any stock exchange.

c) Shares in the donor’s ‘personal’ company.

(ii) The transferor and the transferee must make a joint election (to HMRC) within four years after the end of the
tax
year of the transfer.

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Questions

1.
Ronald purchased an asset on 1 August 2012 for £40,000. He gave this asset to his son, Reagan, on 15 December 2022 at
which time the asset’s market value was £160,000.

(a) Show the CGT position of both Ronald and Reagan if gift holdover relief is not available.

(b) Show the CGT position of both Ronald and Reagan if gift holdover relief is available.

2.
Robby purchased an asset on 1 January 2015 for £50,000. He sold this asset to Dewey on 1 December 2022 for £96,000, at
which time the asset’s market value was £130,000.

The asset qualified for gift holdover relief, and Robby and Dewey have made a joint election to HMRC.

Show the CGT position of both Robby and Dewey.

3.
On 31 July 2022 Bo made a gift of his entire holding of 50,000 £1 ordinary shares (a 100% holding) in Botune Ltd, an
unquoted trading company, to his son. The market value of the shares on that date was £210,000. The shares had been
purchased by Bo on 22 January 2015 for £94,000. Bo and his son have elected for gift holdover relief.

(i) Calculate Bo’s chargeable gain, if any, for the tax year 2022/23, and the base cost of his son’s 50,000 £1 ordinary
shares in Botune Ltd. (2 marks)

(ii) How would your answer have differed if the shares in Botune Ltd had instead been sold to Bo’s son for £160,000?
(2 marks)

4.
On 1 March 2023, Jin Ming gifted his 10% shareholding in XL Ltd to his daughter Jun Ying. The market value of the
shares at that date was £95,000. The shares had been purchased by Jin Ming in 2005 for £25,000.

The balance sheet of XL Ltd showed chargeable assets of £35,000 and chargeable business assets of £30,000.

Jin Ming and Jun Ying have made a joint election to HMRC for gift holdover relief.

Calculate Jin Ming’s chargeable gain on this disposal.

5.
On 5 October 2022, Zia made a gift of her entire holding of 20,000 £1 ordinary shares in Orange Ltd, a personal company,
to her daughter. The market value of the shares on that date was £200,000. The shares had been purchased on 1 January
2017 for £140,000.

The market value of Orange Ltd’s chargeable assets was £150,000, of which £120,000 was in respect of chargeable
business assets.

Zia and her daughter have elected for gift holdover relief.

Calculate Zia’s chargeable gain on this disposal.