A gift can trigger Capital Gains Tax even though no money changes hands. Gift relief passes the bill to the person receiving the gift instead, deferring it for years.
Zazentax Gift Relief Series, Part 1 of 3 · Updated July 2026 · Reading time: about 6 minutes
It catches almost everyone by surprise the first time they hear it. You give your daughter shares in your company, or hand your son the family farmland, and receive nothing in return. Somehow, a tax bill still arrives. The reason is a rule that treats every gift as if it had been sold for its full market value, and where that value has grown since you acquired the asset, Capital Gains Tax, usually shortened to CGT, falls due on paper profit you never actually received in cash.
Gift relief, sometimes called holdover relief, exists precisely for this awkward moment. Where both conditions are met, meaning the asset qualifies and both parties agree, the donor’s gain is not cancelled but transferred, quite literally, into the tax history of the person who received the gift. Understanding the mechanics, who qualifies, and the recent change to one long standing category of qualifying asset is essential before any family or business transfer of this kind.
The Mechanics: One Gain, Moved to Someone Else’s Account
Farida has run her company, an unquoted trading business, since she started it. Her original cost for the shares was £90,000. She decides to give all of her shares to her son Aiden, and on the day of the gift they are worth £250,000. For CGT purposes, the price paid is irrelevant here since nothing was paid; Farida’s disposal proceeds are deemed to be the market value, £250,000, and her gain is £250,000 minus £90,000, which equals £160,000.
Because the shares qualify and both Farida and Aiden sign a joint election, gift relief defers the entire £160,000. Farida’s chargeable gain becomes nil. The deferred amount is then subtracted from Aiden’s base cost, so instead of inheriting a base cost of £250,000, which is what the shares were actually worth when he received them, Aiden’s base cost becomes £250,000 minus £160,000, which equals £90,000, exactly what his mother originally paid. Consequently, when Aiden eventually sells the shares, his own gain will include the growth that happened while his mother owned them. The tax has not disappeared; it has simply moved down a generation and waited.
Key point: Gift relief requires a joint election between the donor and the recipient. The donor cannot claim it alone, and the claim must be made within four years of the end of the tax year in which the gift happened.
What Qualifies, and the 2025 Change That Removed a Familiar Category
Gift relief only applies to specific business related assets, not to gifts generally. Shares in an unquoted trading company qualify regardless of how large or small the donor’s holding is. Shares in a quoted, meaning listed, company qualify only if the donor holds at least 5% of the voting rights, a threshold that makes the company what the legislation calls a personal company. Beyond shares, assets used in a trade carried on by the donor as a sole trader, as a partner, or through their personal company also qualify, typically land, buildings, goodwill and fixed plant and machinery. Agricultural land and buildings used for farming qualify as well, even where farming is not run through a formal trading structure.
For many years, furnished holiday lettings were treated as a trade for this purpose and so also qualified. That is no longer the case. Since 6 April 2025, the special tax regime for furnished holiday lettings was abolished, and holiday lets are now taxed as ordinary property income. Consequently, gifting a furnished holiday letting today no longer supports a gift relief claim, a change that a considerable amount of older guidance still in circulation does not reflect.
Action required: If you are relying on published guidance about gift relief and holiday lettings, check its date. Anything written before April 2025 is describing a category of qualifying asset that no longer exists.
The most common gap in practice involves shares in quoted companies. If Farida’s shares had instead been in a well known listed company and she held only 2% of the voting rights, no gift relief would be available at all, and she would face a real Capital Gains Tax bill on a gift where she received nothing. The 5% personal company threshold is therefore worth checking before any share gift is made, not after.
Why the Claim Matters, and What Comes Next in This Series
Gift relief is never automatic. Without the joint election, the market value rule still applies and the donor is simply taxed on the full deemed gain, with no cash available to pay it. The election itself is straightforward, made in writing or through the tax return of the tax year in which the gift falls, and it binds both parties, since the recipient is agreeing to inherit the donor’s reduced base cost along with the asset.
The example above is the clean case: a qualifying asset used wholly for business purposes, gifted with nothing paid in return. Real transfers are frequently messier, and two situations in particular cut down how much of the gain can be deferred. Selling an asset to a relative for some money, but less than its full value, restricts the relief in a specific and calculable way. Gifting shares in a company that holds some non-business investments alongside its trade does too. Both are covered in the remaining parts of this series.
Key Takeaways
- A gift is a disposal for Capital Gains Tax at deemed market value, even though no cash changes hands.
- Gift relief transfers the donor’s gain into the recipient’s base cost rather than cancelling it, deferring the tax until the recipient eventually sells.
- Qualifying assets include unquoted trading company shares of any size, personal company shares where the donor holds at least 5%, business assets used in a trade, and agricultural land.
- Furnished holiday lettings no longer qualify, following the abolition of the FHL regime from 6 April 2025.
- The relief needs a joint election within four years of the end of the tax year of the gift; without it, the donor is taxed in full with no cash to pay the bill.
Planning to Gift Shares or Business Property to Family?
Get this right before the gift, not after. Zazentax can confirm the asset qualifies, check the 5% threshold, and file the joint election so the gain defers cleanly into the next generation instead of landing as a cash bill you never expected.
Do you want more traffic?
Hey, I am Andrei Spătaru. I am determined to make a business grow. My only question is, will it be yours?
