Recent Budget documents were followed a few days later by the publication of the Overview of Tax Legislation and Rates, which included a brief reference to the “modernisation” of gift holdover relief from 2026. A closer look suggests this is less about modernisation and more about tidying up long-standing inconsistencies in the tax rules.
How gift holdover relief currently works
Gift holdover relief allows capital gains tax (CGT) to be deferred when certain assets are given away, provided both the person making the gift and the recipient jointly elect for the relief. In the context of shares in a trading company, this relief is commonly used by owner-managers passing their business to the next generation, enabling a transfer without an immediate CGT charge.
However, the relief can be restricted where the company owns non-business assets, such as investment properties or shares held for investment. The extent of the restriction is calculated using a statutory formula.
Where the problem arises
The restriction formula looks at the proportion of chargeable business assets within the company. This is where complications arise, as not all assets that contribute to a company’s value are treated as “chargeable” for CGT purposes.
In particular, intangible assets fall into different categories depending on when they were created or acquired. Goodwill generated or acquired before 1 April 2002 remains a chargeable asset, whereas goodwill arising after that date generally falls within the intangible fixed assets regime and is not chargeable for CGT.
The result is an unintended inconsistency. Two companies with identical activities, asset profiles and values may receive very different outcomes purely because one was incorporated before April 2002 and the other after. In some cases, this can mean that gift relief is available for one but largely denied for the other.
What will change from 2026
From 2026, the government plans to update the restriction formula so that it takes account of assets within the intangible fixed assets regime, as well as assets qualifying for the substantial shareholding exemption. This should align the relief more closely with commercial reality and remove the arbitrary distinctions created by historic rule changes.
Planning point
For shareholders facing a significant CGT exposure on a proposed gift of shares, it may be worth reviewing the timing of any transfer. In some cases, delaying until the revised rules take effect could materially improve the availability of gift holdover relief.