If your company owns a let property or a share portfolio alongside its trade, only part of the gain on your shares can be deferred. Here is how that part is measured, and how gift relief interacts with the reduced 18% rate.
Zazentax Gift Relief Series, Part 3 of 3 · Updated July 2026 · Reading time: about 6 minutes
Many family trading companies are not purely trading companies in the strictest sense. In addition to operational assets such as premises, client contracts and stock, they may also own assets held primarily as investments. These might include a flat purchased years earlier and rented to a tenant, or some other investment sitting quietly on the balance sheet. None of this is unusual, and none of it stops the company being a genuine trading business. It does, however, shrink the gift relief available when the owner gives away their shares, and the reduction follows a specific formula worth understanding before any such gift is made.
Why Investment Assets Inside the Company Matter
Gift relief on a gift of shares is only available where the company is what the legislation calls a personal company of the donor, meaning the donor holds at least 5% of the voting rights, and the shares must be in a trading company or the holding company of a trading group. Even where that condition is met, the relief only fully protects the gain to the extent that the company’s own assets are genuinely used for the trade. Where the company also holds assets for investment purposes, meaning assets producing income such as rent or dividends rather than trading profit, the relief is restricted proportionately.
Two categories of the company’s assets matter for the calculation. A chargeable asset is any asset of the company that would produce a taxable capital gain if the company sold it, which in practice means land, buildings, goodwill and similar property; cash, trading stock and money owed by customers are excluded from this category entirely, because they do not generate that kind of gain. A chargeable business asset is simply the subset of chargeable assets that is used for the purposes of the trade. The comparison between these two totals produces a fraction, and that fraction is applied to the shareholder’s gain.
A Worked Example
Tariq owns all of the shares in Bramble Ltd, his personal trading company, with an original cost of £180,000. He gives every share to his son, and on the day of the gift they are worth £600,000. His gain before any relief is £600,000 minus £180,000, which equals £420,000.
Bramble Ltd’s relevant assets on that day are a trading warehouse worth £280,000 and trading machinery worth £20,000, both chargeable and both used in the business, giving chargeable business assets of £300,000 in total. Alongside these, the company holds a let investment property worth £70,000 and a small portfolio of listed shares worth £30,000, both chargeable but neither used in the trade, adding £100,000 of chargeable assets that are not business assets. Total chargeable assets are therefore £300,000 plus £100,000, which equals £400,000. Cash and stock sitting in the business are ignored entirely, since neither counts as a chargeable asset at all.
The fraction of chargeable business assets to total chargeable assets is £300,000 divided by £400,000, which equals three quarters. Applying that fraction to Tariq’s gain of £420,000 gives £315,000 as the amount eligible for gift relief; the remaining £105,000 is immediately chargeable and cannot be deferred, regardless of any election made. If gift relief is claimed on the eligible portion, his son’s base cost becomes the market value of £600,000 minus the deferred £315,000, which equals £285,000.
Key point: The restriction only ever affects gifts of shares in a personal company, never a straightforward gift of a building or piece of equipment owned directly by an individual. Cash, stock and trade debtors inside the company are excluded from the calculation altogether; only property capable of producing a chargeable gain counts.
Where Business Asset Disposal Relief Fits
The £105,000 that cannot be deferred in Tariq’s case is not necessarily taxed at the full rate. Business Asset Disposal Relief, usually shortened to BADR, taxes qualifying gains on trading company shares at a reduced rate, which for 2026/27 is 18%, provided the donor has held the shares and been an officer or employee of the company for at least two years and the personal company test is met. Gift relief is always applied first; only the gain left chargeable after gift relief is then considered for BADR.
Assuming Tariq meets the BADR conditions, his chargeable gain of £105,000, reduced further by his £3,000 annual exempt amount for 2026/27, leaves £102,000 taxable at 18%, giving Capital Gains Tax of £18,360. Had gift relief not been claimed at all, the full £420,000 would potentially have qualified for BADR instead, subject to Tariq’s lifetime allowance for that relief, taxed at the same 18% rate rather than the standard 24%. Consequently, claiming gift relief is not automatically the cheaper route; where the donor’s own BADR rate is low and the recipient may face higher rates on an eventual sale, paying some tax now can beat deferring it into someone else’s higher bracket later.
Action required: Before gifting shares in a family trading company, have the company’s balance sheet reviewed for any investment element, and compare the cost of claiming gift relief against simply paying Business Asset Disposal Relief now. The better answer depends on both generations’ likely tax rates, not on the size of the gain alone.
Key Takeaways
- Gift relief on company shares requires the donor to hold at least 5% of the voting rights, and even then, it is restricted where the company holds investment assets alongside its trade.
- The restriction compares chargeable business assets with all chargeable assets of the company; cash, stock and debtors are excluded from both totals.
- The resulting fraction is applied to the shareholder’s gain; the remainder is chargeable now, whatever election is made.
- Business Asset Disposal Relief, at 18% for 2026/27, can apply to whatever gain remains chargeable after gift relief, but gift relief is always applied first.
- Deferring the maximum possible gain is not always the cheapest outcome; comparing today’s rate against the recipient’s likely future rate is the calculation that actually matters.
Family Company With Some Investment Assets Inside It?
Know the number before the gift, not after. Zazentax can review the balance sheet for any investment element, calculate the fraction that governs your relief, and compare deferring the gain against paying Business Asset Disposal Relief today.
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