Gifts and the dry tax charge
If you (the donor) make a gift to a loved one (the donee), other than your spouse or civil partner, you could be hit for a capital gains tax (CGT) charge broadly based upon the difference between the market value of the asset at the time of the gift less what you acquired it for.
This is effectively a dry tax charge, where you have a tax bill to pay with no disposal proceeds to meet said liability.
However, if the right conditions apply, you could avoid this by making a gift holdover relief (GHR) claim. If the donee is an individual then you both have to make the election, if the donee is a Trust you make a claim on your own. By doing so, the potential tax charge is usually held over until the donee subsequently disposes of the asset further on down the line. The liability then rests with the donee, not the donor.
The type of situations where GHR claims could be made are :
► The asset has been used in the donor’s trade, profession or vocation or within their personal company.
► The gift is of shares/securities in an unlisted company or a company which is the donor’s personal company (i.e. they can exercise at least 5% of the voting rights).
► Any asset which could potentially trigger an immediate inheritance tax (IHT) charge as a result of the gift. An example of this is settling assets into a trust. An IHT charge might not arise, for example, because the value of the asset is no more than £325,000 but that does not prevent a GHR claim being made.
► In January 2024, Zehan gifts the premises he uses for his trade to Clarissa for no consideration.
► At the date of the gift the premises were worth £750K, which he had originally bought four years earlier for £500K. He has a potential taxable gain of £250K.
► However, he and Clarissa make a joint GHR election. This reduces his taxable gain to nil. Clarissa’s deemed acquisition cost is £500K (i.e. £750K less the holdover gain of £250K).
► In May 2026 Clarissa sells the property for £950K. Her taxable gain will be £450K (i.e. £950K – £500K). The GHR can be restricted where:
► The asset was not used within the trade throughout the donor’s ownership period or where only part of it (for example a property) was applied within the business.
► Where shares/securities are concerned, a company has a mixture of chargeable assets, non-business and business (e.g. business premises and an investment rental property).
Before you consider gifting an asset away come and speak to us as there may be tax consequences other than CGT such as inheritance tax or land taxes.