Charge a relative something for a business asset, and gift relief still applies, but only to part of the gain. The cash profit you actually made is taxed straight away.
Zazentax Gift Relief Series, Part 2 of 3 · Updated July 2026 · Reading time: about 5 minutes
Part 1 of this series covered the clean case: a qualifying business asset given away for nothing, with the whole gain deferred through a joint election. Many family transfers are not that simple. A parent selling a business asset to a child often asks for something, whether out of fairness to other children, to help the child feel ownership of the deal, or simply because a little cash is useful. The moment any money changes hands below full market value, gift relief applies a specific formula rather than a blanket deferral, and the result surprises people who expected an all or nothing outcome.
The Rule: Your Actual Cash Profit Is Taxed Now
Where a qualifying business asset is sold to a connected person, such as a close relative, for more than the donor originally paid for it but less than its current market value, the disposal is called a sale at undervalue. The law splits the resulting gain into two pieces. First, any genuine cash profit, meaning the price actually received minus the donor’s original cost, is immediately chargeable to Capital Gains Tax and cannot be deferred under any circumstances. Second, the remaining gain, representing the gift element of the transaction, can still be deferred through the normal gift relief election.
The logic is straightforward once stated plainly: gift relief exists to help people who receive no cash and therefore have nothing to pay tax with. Someone who has actually pocketed money has, by definition, received something to pay tax from, so that part of the profit is ring fenced from the relief.
A Worked Example
Owen bought a workshop years ago for £60,000. It is now worth £180,000, and he sells it to his daughter Priya for £95,000, a price that helps her afford it while still being well below the true value. Owen’s full gain, ignoring any relief, is £180,000 minus £60,000, which equals £120,000.
The cash profit Owen actually made is £95,000 minus £60,000, which equals £35,000, and that £35,000 is chargeable to Capital Gains Tax immediately, whatever election is made. The remaining gain of £120,000 minus £35,000, which equals £85,000, represents the gift element, and Owen and Priya can jointly elect to defer that £85,000 under gift relief.
Priya’s base cost then follows a clean pattern: it becomes the market value of £180,000 minus the deferred gain of £85,000, which equals £95,000, precisely what she paid. This is not a coincidence; whenever this restriction applies and the remaining gain is fully deferred, the recipient’s base cost always ends up equal to the price they actually paid. The rule leaves both figures matching common sense: Owen is taxed only on the money he really received above his cost, and Priya’s future tax position starts from what she genuinely spent.
Key point: The formula in short: cash profit, meaning price paid minus the donor’s original cost, is taxed now and cannot be deferred. The rest of the gain, up to the full market value, can be deferred by election, and the recipient’s base cost ends up equal to what they paid.
When the Restriction Disappears Entirely
Two boundary cases are worth knowing. If the price paid is at or below the donor’s original cost, no cash profit arises at all, and the full gain qualifies for deferral exactly as in a straightforward gift. If, at the other extreme, the full market value is paid, there is no gift element left to defer; the disposal is simply an ordinary sale, taxed in full in the normal way, and gift relief has nothing to do.
The restriction therefore bites specifically in the middle ground, whenever a price above cost but below market value passes between connected people. Family sales are, almost by design, likely to sit in exactly that range, which is why this rule matters far more in practice than its narrow description suggests.
Action required: Before setting the price on a family sale of a qualifying business asset, calculate the gap between that price and your original cost. That gap, not the full gain, is what becomes payable immediately, and knowing the figure in advance allows you to choose a price with the tax consequence in mind.
Key Takeaways
- Selling a qualifying asset to a relative for more than your cost but less than market value splits the gain into two parts.
- The cash profit, price received minus original cost, is always chargeable immediately and can never be deferred.
- The remaining gain, up to market value, can still be deferred by joint election under ordinary gift relief.
- Where the restriction fully applies, the recipient’s base cost ends up equal to the price they actually paid.
- A price at or below the donor’s cost avoids the restriction entirely; a price at full market value removes gift relief from the picture altogether.
Selling a Business Asset to Family for a Family Price?
A ten minute calculation now can save a very unwelcome tax return later. Zazentax can work out the cash profit that falls due immediately, set the price with the tax consequence in view, and file the election on the deferred balance.
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