Gift holdover relief allows individuals to transfer certain business assets by way of gift without having to pay Capital Gains Tax (CGT) immediately on the gain arising. Instead, the gain is generally deferred until the recipient subsequently disposes of the asset. The recipient effectively takes the asset at a reduced base cost, reflecting the gain that has been held over.

The relief can be particularly useful for business owners transferring shares to family members as part of succession planning, or when passing ownership of a business to the next generation. Subject to the relevant conditions, it can allow a business to be transferred without the donor having to fund an immediate CGT liability.

Under sections 165 to 169G of the Taxation of Chargeable Gains Act 1992, gift holdover relief may be available on gifts of qualifying business assets, including certain shares in trading companies. However, special rules restrict the amount of relief available where shares are gifted in a company whose assets include assets not used for the purposes of its trade. The restriction is designed to prevent the relief from applying inappropriately to non-business assets held within the company.

As announced at Budget 2025, the government will introduce legislation in Finance Bill 2026/27 to modernise the formula used to calculate this restriction. The revised formula will include assets that qualify for the substantial shareholding exemption (SSE) or fall within the intangible fixed assets (IFA) regime. Examples of intangible assets include certain types of goodwill acquired or created on or after 1 April 2002.

The SSE generally exempts qualifying gains made by companies on disposals of substantial shareholdings in other companies. The IFA regime, meanwhile, governs the Corporation Tax treatment of intangible fixed assets, including certain goodwill, intellectual property and other intangible assets. Under the existing gift holdover relief restriction formula, the treatment of assets falling within these regimes can create distortions when calculating the amount of relief available.

The reform is intended to restore the operation of the restriction formula to reflect the position before the introduction of the SSE and IFA regimes. Its impact will depend on the composition of the company's assets. Where a company holds non-trading assets alongside its trading business, the revised formula may increase the amount of relief available where the additional assets are mainly trading-related. Conversely, the relief may be reduced where the additional assets are predominantly non-trading assets. Companies whose assets consist entirely of trading assets are not expected to be affected.

The changes will apply to disposals made on or after 6 April 2027. Business owners considering gifts of shares, particularly as part of family succession planning, should review the composition of the company's assets and consider how the revised calculation may affect the availability of relief.