We have rebranded Retirement Advantage products as Canada Life. Visit our Retirement Account and Home Finance pages.
Please be aware the Canada Life International offices will be closed from 5pm Friday 21st December, re-opening at 9am on Thursday 27th December. Then closed from 5pm on Friday 28th December and re-opening at 9am on Wednesday 2nd January 2019.

Collectives

Hold-over relief

As part of an estate planning recommendation, you may advise a client to gift away assets during their lifetime. Where the gift is a chargeable asset or it is sold for less than its market value, it is treated as a disposal for capital gains tax (CGT) purposes and would normally crystallise any gain.

Hold-over relief is available to individuals and trustees of a settlement providing the recipient of the gift is resident in the UK. Note; gifts between spouses and civil partners don’t trigger capital gains anyway.

Hold-over relief allows a client to gift assets, postponing any gain so that it is ‘held-over’ until the recipient of the gift disposes of them.

The amount of gain held-over is based on the market value on the day of the gift or disposal and the market value is the price that the assets might reasonably be expected to realise on the open market.

How the relief works

The held-over gain is treated as reducing the base cost of the asset in the hands of the recipient. This is best shown by an example:

  • Tom has an asset he acquired for £20,000.
  • Five years later he gifts this asset to a friend, Jerry. At the time of the gift it was worth £50,000. The chargeable gain was therefore £30,000.
  • If hold-over relief is claimed then Tom does not have to pay CGT on this gain.
  • On the future disposal the cost used to calculate the gain is the market value at acquisition less the amount of the gain held-over.

    The market value was £50,000; however, the gain held-over was £30,000, therefore the acquisition cost would be £20,000 in any future CGT calculation.

If the asset transferred was a private residence, there may be restrictions on the entitlement to private residence relief on a subsequent disposal.
More information regarding private residence relief is available in HMRC Helpsheet 283.

Qualifying assets

There are five qualifying categories of assets:

1. Business assets
An asset used for the purposes of a trade, profession or vocation by a client (solely or in a partnership) or by a company where the client has at least 5% voting rights. For a trust, the asset must be used for a trade, profession or vocation carried on by the trustees or a beneficiary with an interest in possession.

2. Shares and securities
Those of a trading company or, if the shares or securities are not listed on a ‘recognised stock exchange’, the holding company of a trading group. The Alternative Investment Market is not a recognised stock exchange. Listed shares and securities can qualify under exceptional circumstances.

3. Agricultural land
If it does not qualify as a business asset, it can qualify if it is agricultural property for the purposes of inheritance tax (IHT). IHT relief for agricultural land is limited to its agricultural value. So, where the value of agricultural land is in excess of its agricultural value, for example, because of possibilities of development, the excess does not qualify for that relief. This restriction does not apply for the purposes of hold-over relief.

4. Chargeable transfers for IHT purposes
Hold-over relief is available where the disposal is a chargeable transfer for IHT purposes, such as a transfer to a discretionary trust, even if this is within the client’s nil rate band.

5. Certain occasions exempted from IHT
Hold-over relief is available where certain IHT exemptions apply, including:

  • a transfer from an ‘accumulation and maintenance trust’ which had that status before 22 March 2006 either to a qualifying beneficiary or on their death
  • a transfer from a ‘trust for bereaved minors’ either to them or on their death and
  • a transfer from an ‘18-25 trust’ either to the relevant beneficiary before their 18th birthday or on their death before the age of 18.
  • where the disposal would be a chargeable lifetime transfer or a potentially exempt transfer for IHT purposes, but for one of a list of exemptions most of which are concerned with historic buildings or works of art.

Claiming hold-over relief

To obtain hold-over relief, a claim must be made by the following within four years from the end of the year of assessment in which the disposal occurred:

  • jointly by the donor and the recipient or
  • only by the donor if the recipient is the trustee of a settlement.

Becoming non-resident

If the recipient of a gift where hold-over relief has been applied for becomes non-resident within six years of the end of the tax year in which the gift was made and the asset has not been disposed of, they are chargeable on the held-over gain. Different rules apply where the transferee is a trustee.

If the tax is not paid, in certain circumstances HMRC can collect it from the donor.

More information regarding Hold-over relief is available in HMRC Helpsheet 295.

 

This briefing note has been prepared for professional adviser use only.

The information regarding taxation is based on our understanding of current legislation, which may be altered and depends on the individual financial circumstances of the investor. We recommend investors take their own professional tax advice.

This briefing note is also available as a PDF

This website is for UK professional advisers only and is not approved for use by private customers.

Canada Life Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority.

Canada Life International Limited and CLI Institutional Limited are Isle of Man registered companies authorised and regulated by the Isle of Man Financial Services Authority.

Canada Life International Assurance (Ireland) DAC is authorised and regulated by the Central Bank of Ireland.

Stonehaven UK Limited and MGM Advantage Life Limited, trading as Canada Life, are subsidiaries of The Canada Life Group (U.K.) Limited. Stonehaven UK Ltd is authorised and regulated by the Financial Conduct Authority. MGM Advantage Life Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority.