Capital Gains Tax Holdover Relief: S165, S260, and Claims

Capital Gains Tax Holdover Relief lets you defer the CGT on a gift of a qualifying business asset or on certain transfers into trust. You pay nothing on the gain at the point of the gift; instead, the recipient inherits your gain by taking the asset at a reduced base cost, and the tax falls due when they eventually sell. The relief exists because a gift produces no sale proceeds to fund a tax bill. With CGT rates for 2025–26 sitting at 18% for basic-rate taxpayers and 24% for higher-rate taxpayers on most assets, the deferral can be worth a great deal.¹

What Gifts Qualify

There are two separate routes into the relief, sitting in different sections of the Taxation of Chargeable Gains Act 1992. Which one applies depends on what you are giving and to whom.

Section 165: Gifts of Business Assets

Section 165 covers gifts of assets used in a trade. Relief is available where you give away an asset used in a trade you carry on yourself, or one used by your personal company or a trading group where the holding company is your personal company.² The main qualifying categories are:

Assets used in your trade, such as plant, machinery, or business premises.
Shares or securities in a trading company (or the holding company of a trading group) that are not listed on a recognised stock exchange, plus shares in your personal company even where they are listed.²
Agricultural property that qualifies under the Inheritance Tax Act 1984, even where it is not itself used in a trade, provided the conditions for agricultural property relief are met.²

Shares in a pure investment company do not qualify. The company has to be actively trading. That distinction matters for family companies that hold investment portfolios rather than running an operating business.

Section 260: Transfers That Trigger an IHT Charge

Section 260 applies to gifts that are immediately chargeable to Inheritance Tax. The most common example is a transfer into a relevant property trust, where the gift is a chargeable transfer rather than a potentially exempt transfer for IHT purposes.³ The rationale is that the same movement of wealth should not be taxed twice.

Section 260 also covers certain transfers that are exempt from IHT under specific provisions, including gifts to political parties, transfers to maintenance funds for historic buildings, and distributions from trusts for bereaved minors or 18-to-25 trusts where no IHT charge arises.⁴ Unlike Section 165, the asset does not need to be a business asset; any chargeable asset can qualify. If a gift falls within both sections, you only claim under one.

How the Deferred Gain Works

For an outright gift, the mechanic is simple. HMRC treats the gift as a disposal at market value, but the gain that would otherwise be taxable on you is deducted from the recipient’s acquisition cost. The recipient therefore takes the asset at a lower base cost than its true market value, which increases their taxable gain when they eventually sell.

Take an example. You bought a qualifying business asset for £200,000 and it is worth £500,000 when you gift it. The inherent gain is £300,000. Claim holdover relief and you pay nothing now. The recipient is treated as acquiring the asset for £200,000 (£500,000 market value less the £300,000 held-over gain). If they later sell for £600,000, their taxable gain is £400,000, capturing the entire appreciation from your original purchase through to their sale.

The recipient can still use their own annual exempt amount on that future disposal. For 2025–26 the allowance is £3,000 per individual.⁵ Modest, but worth factoring in.

Sales at Less Than Market Value

If you transfer the asset for a price below market value rather than giving it outright, the calculation splits. Any actual profit you make (the sale price above your original cost) is taxable immediately and cannot be held over.⁶ Only the gifted portion of the gain qualifies for deferral.

HMRC’s own example: you sell a shop worth £81,000 to your brother for £40,000, having paid £23,000 for it. You are taxed now on the £17,000 profit (£40,000 minus £23,000). The rest of the gain, the difference between the £40,000 you received and the £81,000 market value, can be held over and reduces your brother’s base cost.⁶

Assets Used Only Partly for Business

Where an asset was only partly used for the business, partial holdover relief is usually available, with the held-over gain reduced proportionally to reflect the non-business use.⁶ A property that was 60% business premises and 40% private residence would qualify for holdover on 60% of the gain. The other 40% either falls due immediately or may attract a different relief such as Private Residence Relief, depending on the facts. Splitting the gain accurately usually needs professional valuation evidence.

Residency and the Six-Year Emigration Clawback

Both donor and recipient generally need to be UK-resident. Section 166 blocks Section 165 relief where the recipient is non-resident, and Section 167 blocks it where the recipient is a company controlled by a connected non-resident person. These rules stop appreciated assets being routed out of the UK tax net.

A separate clawback catches recipients who leave the UK afterwards. If the recipient ceases to be UK-resident within six years of the end of the tax year in which the gift was made, and has not yet sold the asset, the held-over gain becomes chargeable as though they had disposed of the asset immediately before emigrating.⁷ This is one of the most commonly missed traps in family and estate planning.

Two exceptions apply. If the recipient goes abroad temporarily for employment and returns within three years without having sold the asset, the clawback does not bite. And where the gifted asset is an interest in UK land, the recipient can elect to increase the gain on their eventual disposal by the held-over amount rather than trigger the charge on leaving.⁷ If the recipient fails to pay tax triggered by the clawback within twelve months, HMRC can assess the original donor instead, though the donor has a statutory right to recover that amount from the recipient.

How to Claim

The claim is made on the form in HMRC’s Helpsheet HS295, which covers both Section 165 and Section 260.⁸ It has to be a joint claim signed by both the donor and the recipient. The only exception is where the recipient is a trust; there the donor claims alone. Where the gift is to a partnership, a form signed on behalf of the partnership as a whole is not sufficient; each partner who receives a share of the asset has to consent individually.⁹

The form asks for both parties’ personal details and tax references, a description of the asset and date of disposal, the original acquisition cost and any allowable expenditure, the 31 March 1982 value where relevant, the market value at the date of transfer, and (for shares) details of any bonus issues or reorganisations.¹⁰ You tick the qualifying basis and both parties sign; digital signatures are accepted.⁹

The claim has to be made within four years of the end of the tax year in which the gift was made.¹¹ Miss the deadline and the deferral is lost; there is no discretion to extend. Most people attach the completed form to their Self Assessment return for the year of the gift; if you are not filing a return that year, it can be posted to HMRC directly. Keep copies and proof of posting.

Getting the Valuation Right

Because the whole calculation hangs on the market value at the date of transfer, the valuation matters. HMRC can challenge it, and if they conclude the figure was overstated or understated they will recalculate the held-over gain. Listed shares are straightforward; business premises, unlisted company shares, and agricultural land almost always need a professional valuation.

HS295 does allow estimates where firm figures are not yet available, but they have to be flagged with specific codes on the form, and HMRC may ask for supporting evidence later. Unsupported estimates invite scrutiny. For unlisted shares in particular, an independent valuation report from a qualified professional is worth the cost, because an incorrect base cost tends to surface years later when the recipient sells.

What the Recipient Is Taking On

The recipient needs to understand what they are signing. By joining the claim they accept a reduced base cost and a larger taxable gain when they eventually dispose of the asset. If the asset keeps appreciating, that future bill can be significant, and the position follows the asset until it is sold. That is the trade-off at the heart of the relief: no tax now, more tax later, paid by someone else.

1
GOV.UK. Capital Gains Tax: What You Pay It On, Rates and Allowances
2
HM Revenue & Customs. Capital Gains Manual – Relief for Gifts of Business Assets: Qualifying Assets
3
HM Revenue & Customs. Capital Gains Manual
4
legislation.gov.uk. Taxation of Chargeable Gains Act 1992 – Section 260
5
GOV.UK. Capital Gains Tax Rates and Allowances
6
GOV.UK. Gift Hold-Over Relief
7
GOV.UK. Capital Gains Manual CG66888 – Relief for Gifts of Business Assets
8
HM Revenue & Customs. Capital Gains Tax Relief on Gifts and Similar Transactions (Self Assessment Helpsheet HS295)
9
GOV.UK. Capital Gains Manual CG66889 – Relief for Gifts of Business Assets: Claims
10
HM Revenue & Customs. Claim for Hold-Over Relief – Sections 165 and 260 TCGA 1992
11
GOV.UK. Capital Gains Manual CG66889 – Relief for Gifts of Business Assets: Claims – Section: Time Limits