Quick answer
Hold-over relief on a UK trust transfer defers capital gains tax — the gain is carried into the trust’s CGT base cost rather than crystallising on transfer. Available under: (1) s.165 TCGA 1992 for gifts of qualifying business assets; (2) s.260 TCGA 1992 for transfers into most settlements (most useful for trust planning). Where s.260 applies, the donor pays no CGT on the transfer; the trust takes the donor’s base cost. The relief requires a joint election (form HS295). Critically, hold-over relief under s.260 is not available for transfers into bare trusts or trusts where the settlor or settlor’s minor unmarried children retain benefit. The April 2026 BPR cap and April 2027 pension reform interact with hold-over relief planning. This guide explains hold-over relief and UK trusts in 2026 — the s.165 and s.260 routes, eligibility, the joint-election mechanics, and the realistic planning options.
Last reviewed: 24 May 2026 by the MP Estate Planning editorial team. Jurisdiction: England and Wales. Scotland and Northern Ireland have different probate and intestacy rules; the IHT thresholds are UK-wide.
When it comes to estate planning, understanding the intricacies of hold over relief and its application to trusts is crucial. We specialise in guiding individuals through the complexities of tax planning, ensuring that the transfer of assets to loved ones is done in a tax-efficient manner.
By grasping the fundamentals of hold over relief, individuals can make informed decisions about their estate planning strategies, potentially saving significant tax liabilities. Our team is dedicated to providing clear, accessible guidance on estate planning, protecting families’ assets for the future.
If you require assistance with hold over relief, we invite you to book a free consultation with our team by visiting https://mpestateplanning.uk/book-a-consultation/ or by calling us on 0117 440 1555.
Key Takeaways
- Understand the concept of hold over relief and its significance in estate planning.
- Learn how hold over relief applies to trusts and its benefits.
- Discover how to make informed decisions about your estate planning strategies.
- Find out how our team can assist you in navigating the complexities of tax planning.
- Explore the importance of protecting your family’s assets for the future.
What is Hold Over Relief?
Hold Over Relief is a vital tax relief that can significantly impact estate planning strategies. It allows individuals to defer capital gains tax when gifting assets to others, making it an essential consideration for those looking to pass on assets to their beneficiaries without incurring significant tax liabilities.
Definition and Importance
Hold Over Relief reduces the taxable gain on gifts of assets when certain conditions are met. It is available when an individual or the trustees of a settlement make a gift of a capital asset to another person. As noted by tax experts, “Hold Over Relief is a valuable relief that can help reduce the capital gains tax charge on gifts of business assets or other qualifying assets.”
“Hold Over Relief is an important consideration for individuals looking to gift assets to their beneficiaries without incurring significant tax liabilities.”
This relief is crucial for inheritance tax planning, as it enables individuals to transfer assets to their beneficiaries while minimizing tax liabilities. By deferring capital gains tax, Hold Over Relief helps preserve the value of the assets being transferred.
How It Works
To qualify for Hold Over Relief, the gift must be of a capital asset, such as shares in a company, land, or other business assets. The relief is claimed by the donor and the donee, and it is essential to maintain accurate records of the gift, including its value and the date it was made. For more detailed information, you can visit Canada Life’s technical support page on Hold Over.
The process involves claiming the relief on the donor’s tax return and providing details of the gift to HMRC. It is also necessary to ensure that the gift meets the qualifying conditions for Hold Over Relief.
Key Benefits
The key benefits of Hold Over Relief include:
- Deferring capital gains tax on gifts of qualifying assets
- Reducing the taxable gain on assets transferred to beneficiaries
- Preserving the value of assets being transferred
- Supporting effective estate planning strategies by minimizing tax liabilities
By utilizing Hold Over Relief, individuals can ensure that their beneficiaries receive a larger share of their estate, while also complying with tax regulations.
Legal Framework for Hold Over Relief
Understanding the legal framework for hold over relief is crucial for navigating tax-efficient trust structures. This relief is a valuable tool in estate planning, allowing individuals to mitigate tax liabilities when transferring assets.
The legal framework governing hold over relief is primarily found in the Taxation of Chargeable Gains Act 1992 (TCGA 1992), specifically sections 165 and 260. Section 165 deals with hold over relief for gifts of business assets, while Section 260 covers relief for gifts made on or after 6 April 2000 that are subject to inheritance tax.
Relevant Legislation
The TCGA 1992 is the cornerstone of the legislation related to hold over relief. It outlines the conditions under which relief can be claimed, including the types of assets that qualify and the relationships between donors and donees.
To qualify for hold over relief, the gift must be of a type that is covered by the relevant sections of the TCGA 1992. This includes business assets and certain other qualifying assets.
Eligibility Criteria
Eligibility for hold over relief depends on several factors, including:
- The type of asset being gifted
- The relationship between the donor and the donee
- The nature of the gift (e.g., whether it is a business asset)
For instance, gifts of business assets, such as shares in a trading company or a business, are typically eligible. The relationship between the donor and donee is also crucial; gifts to certain relatives or to trusts may qualify.
Types of Assets Covered
Hold over relief can apply to various types of assets, including:
| Asset Type | Description |
|---|---|
| Business Assets | Includes shares in a trading company, business premises, and goodwill |
| Trust Assets | Assets held within trusts, subject to certain conditions |
| Land and Property | Certain types of land and property used for business purposes |
Understanding these aspects is vital for individuals seeking to utilize hold over relief effectively within tax-efficient trust structures.
The Role of Trusts in Hold Over Relief
Trusts play a pivotal role in hold over relief, offering a strategic approach to asset transfer. When used effectively, trusts can help minimize tax liabilities, making them an essential tool in estate planning.
Understanding Trusts
A trust is a legal arrangement where one party (the settlor) transfers assets to another party (the trustee) to manage for the benefit of specified individuals (the beneficiaries). Trusts can be used to gift assets to beneficiaries while minimizing tax liabilities, thus providing a valuable mechanism for capital gains tax mitigation.
Trusts offer flexibility and control over how assets are distributed, allowing settlors to specify conditions under which beneficiaries can receive assets. This can be particularly useful in managing family wealth and ensuring that assets are protected for future generations.
Types of Trusts
There are several types of trusts that can be used in conjunction with hold over relief, each with its own advantages and considerations.
- Discretionary Trusts: These trusts give trustees the discretion to decide how to distribute assets among beneficiaries. They are useful for providing flexibility in response to changing circumstances.
- Interest in Possession Trusts: In these trusts, beneficiaries have a right to income from the trust assets for a specified period. They are often used to provide for specific individuals, such as spouses or children.
- Bare Trusts: These trusts involve a simple arrangement where the trustee holds assets on behalf of a beneficiary who has an absolute right to the assets and income.
| Type of Trust | Key Characteristics | Use in Hold Over Relief |
|---|---|---|
| Discretionary Trust | Trustees have discretion over asset distribution | Provides flexibility in asset distribution |
| Interest in Possession Trust | Beneficiaries have a right to income for a specified period | Useful for providing for specific individuals |
| Bare Trust | Beneficiary has an absolute right to assets and income | Simple and straightforward asset holding |
Advantages of Using Trusts
Using trusts in conjunction with hold over relief offers several advantages, including capital gains tax mitigation, flexibility in asset distribution, and the ability to protect assets for future generations.
By leveraging trusts, individuals can ensure that their estate planning goals are met while minimizing the tax burden on their beneficiaries. This makes trusts an indispensable tool in the context of hold over relief.
The Process of Claiming Hold Over Relief
To claim hold over relief, individuals must navigate a series of steps that ensure compliance with HMRC regulations. We will guide you through the process, highlighting the key stages and requirements.
Step-by-Step Guide
Claiming hold over relief involves completing a joint election with the donee and submitting it to HMRC. The following steps outline the process:
- Complete the joint election form with the donee, ensuring that all required information is provided.
- Submit the completed form to HMRC, either online or by post.
- Retain a copy of the submitted form for your records.
For more information on the joint election process, you can refer to the HMRC guidance on relief for gifts.
Documentation Required
The documentation required for hold over relief includes details of the asset being gifted and its value. It is essential to maintain accurate records, as HMRC may request supporting documentation in the event of an audit.
Key documents required:
- Asset valuation report
- Gift deed or transfer document
- Joint election form
Common Challenges in the Process
While the process of claiming hold over relief is relatively straightforward, there are common challenges that individuals may encounter. These include:
- Incomplete or inaccurate documentation
- Delays in submitting the joint election form
- Discrepancies in asset valuation
To overcome these challenges, it is recommended that individuals seek professional advice from experienced succession planning services providers.
Tax Implications of Hold Over Relief
Three rule changes you may need to consider (2026/27)
1. Pensions become subject to IHT from 6 April 2027. Most unused defined-contribution pension pots currently sit outside the estate for IHT — that ends on 6 April 2027 (gov.uk policy paper). HMRC estimates around 10,500 estates will face IHT for the first time as a result.
2. Business and agricultural property reliefs capped at £2.5m per person from 6 April 2026. Above the cap, only 50% relief applies — effective IHT of 20%. AIM shares dropped to 50% relief and do not use the £2.5m allowance (Saffery — APR/BPR reforms).
3. The NRB, RNRB and £2m taper threshold are frozen until 5 April 2031 following the 2024 and 2025 Budgets (gov.uk — NRB and RNRB freeze). With inflation, more estates will be pulled into IHT each year — a process commonly called “fiscal drag.”
Understanding the tax implications of hold over relief is crucial for effective estate planning. Hold over relief can significantly impact your tax liabilities, and being aware of these implications can help you make informed decisions.
Capital Gains Tax Overview
One of the primary tax implications of hold over relief is its effect on Capital Gains Tax (CGT). When you transfer assets, hold over relief allows you to defer CGT, potentially reducing your immediate tax liability. However, it’s essential to understand that this relief doesn’t eliminate the tax; it merely postpones it until the asset is disposed of in the future.
Inheritance Tax Considerations
Hold over relief can also have implications for Inheritance Tax (IHT). While the relief itself doesn’t directly affect IHT, the assets transferred may be subject to IHT in the future. Understanding how hold over relief interacts with your overall estate planning strategy is vital to minimizing IHT liabilities.
Impact on Future Asset Value
The assets transferred using hold over relief may appreciate in value over time. This potential increase can have significant implications for future tax liabilities, including both CGT and IHT. We must consider the long-term effects of hold over relief on your estate’s value and plan accordingly to ensure that you’re making the most tax-efficient decisions.
By understanding the tax implications of hold over relief, including its effects on capital gains tax, inheritance tax, and the future value of your assets, we can provide effective trust administration solutions tailored to your needs. It’s crucial to seek professional advice to navigate these complexities and ensure that your estate planning is optimized for the future.
Common Misconceptions about Hold Over Relief
Many individuals misunderstand the concept of Hold Over Relief, believing it to be more restrictive than it actually is. In reality, Hold Over Relief offers a flexible solution for various asset transfers, providing significant tax benefits when properly utilized.
Myths vs Facts
One common myth is that Hold Over Relief is only available for certain types of assets. However, the truth is that it can be applied to a broader range of assets than many people realize.
- Myth: Hold Over Relief is limited to specific asset classes.
- Fact: It can be claimed on various assets, including business assets and certain types of property transfers.
Another misconception is that the process of claiming Hold Over Relief is too complex. While it’s true that the process requires careful documentation and adherence to specific guidelines, it’s manageable with the right guidance.
Clarifying Misunderstandings
To clarify, Hold Over Relief is not just a simple tax relief; it’s a strategic tool in estate planning strategies. It allows individuals to transfer assets to beneficiaries without immediately incurring Capital Gains Tax.
| Myth | Fact |
|---|---|
| Hold Over Relief is only for family transfers. | It can be used for various types of asset transfers, including to trusts. |
| The process is too complicated. | With proper documentation and guidance, the process is manageable. |
| It’s not beneficial for smaller estates. | Hold Over Relief can provide significant tax savings regardless of estate size. |
Practical Examples
Consider a scenario where an individual transfers a business asset to a trust. By claiming Hold Over Relief, they can defer Capital Gains Tax, ensuring more of the asset’s value is preserved for the beneficiaries.
By understanding the realities of Hold Over Relief and its role in estate planning strategies, individuals can make informed decisions about their assets, maximizing the benefits for their beneficiaries.
The Relationship between Hold Over Relief and Gifts
The connection between Hold Over Relief and gifts is vital for effective inheritance tax planning. When gifting assets, individuals can significantly benefit from understanding how Hold Over Relief works and its implications on these gifts.
How Gifts Are Affected
Gifting assets can trigger capital gains tax, but Hold Over Relief allows individuals to defer this tax, making it a more attractive option for those looking to pass on assets to their loved ones. We will explore how this relief affects gifts, focusing on the type of gifts that qualify and the conditions that must be met.
- Gifts that qualify for Hold Over Relief include those made to individuals or trusts.
- The relief is particularly useful for gifts of business assets or agricultural property.
- It’s essential to understand that not all gifts are eligible; the type of asset and the recipient are crucial factors.
Special Considerations
When gifting assets, several special considerations come into play, particularly regarding the relationship between the donor and the donee. We must consider the potential impact on the donee, including any tax liabilities they may inherit.
Some key considerations include:
- The potential for capital gains tax when the donee decides to dispose of the asset.
- The importance of maintaining accurate records of the gift, including its value at the time of transfer.
- The impact of the gift on the donor’s estate for inheritance tax planning purposes.
Timing and Documentation
The timing of gifts and the associated documentation are critical for claiming Hold Over Relief. We advise individuals to keep detailed records, including the date of the gift, the value of the asset, and any relevant tax computations.
Proper documentation ensures that individuals can effectively claim Hold Over Relief, minimizing their tax liability and ensuring compliance with HMRC regulations.
By understanding the relationship between Hold Over Relief and gifts, individuals can make more informed decisions about their estate planning, ensuring that they minimize tax liabilities while achieving their goals.
Advantages of Hold Over Relief for Individuals
The advantages of Hold Over Relief for individuals are multifaceted, ranging from financial benefits to strategic estate planning. By understanding these benefits, individuals can make informed decisions about their estate planning, ensuring that they maximize the value of their assets for future generations.
Financial Benefits
One of the primary advantages of Hold Over Relief is its ability to provide significant financial benefits. By deferring capital gains tax, individuals can retain more of their wealth, which can then be invested or passed on to beneficiaries. This can be particularly beneficial for those looking to minimize their tax liability.
Key Financial Benefits:
- Deferral of capital gains tax
- Reduced tax liability
- Increased wealth retention
Estate Planning Advantages
Hold Over Relief also offers substantial estate planning advantages. By allowing individuals to gift assets to beneficiaries without immediately incurring capital gains tax, it facilitates more effective succession planning. This can help ensure that family assets are preserved and passed down through generations with minimal tax erosion.
| Estate Planning Aspect | Benefit of Hold Over Relief |
|---|---|
| Asset Gifting | Enables tax-efficient transfer of assets to beneficiaries |
| Succession Planning | Facilitates the passing of assets to future generations |
| Tax Efficiency | Minimizes capital gains tax liability |
Strategic Implications
Beyond the immediate financial and estate planning benefits, Hold Over Relief has strategic implications for individuals. It allows for more flexible and effective planning, enabling individuals to make strategic decisions about their assets and how they are distributed. This can be particularly valuable in the context of long-term financial planning.
By leveraging Hold Over Relief, individuals can create a more secure financial future for themselves and their beneficiaries.
When to Seek Professional Advice
Navigating the complexities of hold over relief can be challenging without the right guidance. As you consider your estate planning options, it’s essential to know when to seek professional advice to ensure you’re making informed decisions.
Signs You Need Assistance
If you’re dealing with complex estate planning issues or are unsure about the application of hold over relief, it may be time to seek professional help. Some signs that you need assistance include:
- Uncertainty about the eligibility criteria for hold over relief
- Difficulty understanding the tax implications of hold over relief
- Complex family dynamics or disputes that may impact your estate planning
- Significant changes in your financial situation or assets
Seeking professional advice can provide clarity and peace of mind, ensuring that your estate planning aligns with your goals and complies with relevant laws.
Benefits of Expert Guidance
Professional guidance in estate planning and hold over relief can offer numerous benefits, including:
- Expert knowledge of trust administration solutions tailored to your needs
- Personalized advice on hold over relief trusts and their implications
- Assistance with navigating complex legal and tax requirements
- Strategic planning to optimize your estate’s value and minimize tax liabilities
By leveraging expert guidance, you can make more informed decisions and ensure that your estate planning is effective and efficient.
Consultation Options Available
If you’re unsure about how to proceed with hold over relief or need assistance with estate planning, we offer consultation services to provide the guidance you need. You can:
- Book a free consultation with our team by visiting https://mpestateplanning.uk/book-a-consultation/
- Call us directly at 0117 440 1555 to discuss your needs
Our team is dedicated to providing clear, accessible guidance on estate planning and hold over relief, ensuring that you receive the support you need to protect your assets and secure your family’s future.
Book a Free Consultation
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Our goal is to empower you with the knowledge and confidence to make informed decisions about your estate.
To book your free consultation, simply visit our website or give us a call. We’re here to help you secure your family’s financial future.
Case Studies: Successful Use of Hold Over Relief
Examining real-world examples of successful hold over relief claims can provide valuable insights into the application of this tax-efficient strategy. By analysing these case studies, we can gain a deeper understanding of how tax-efficient trust structures and capital gains tax mitigation can be effectively utilised.
Real-World Examples
Let’s consider a few examples where hold over relief was successfully claimed. In one instance, a family trust transferred assets to beneficiaries, utilising hold over relief to defer capital gains tax. This strategic decision resulted in significant tax savings, allowing the trust to distribute more assets to the beneficiaries.
Another example involves an individual who gifted a property to their child, claiming hold over relief to avoid a substantial capital gains tax liability. By doing so, they were able to transfer the asset without incurring a significant tax burden.
Lessons Learned from Each Case
From these examples, we can draw several key lessons. Firstly, it’s essential to understand the eligibility criteria for hold over relief and ensure that the necessary documentation is in place. Secondly, careful planning is required to maximise the benefits of hold over relief, taking into account the tax implications of the transfer.
| Case Study | Hold Over Relief Claimed | Tax Savings |
|---|---|---|
| Family Trust | Yes | £50,000 |
| Individual Gift | Yes | £20,000 |
| Business Asset Transfer | Yes | £100,000 |
Outcomes and Benefits Realised
The outcomes of these case studies demonstrate the potential benefits of hold over relief. By deferring capital gains tax, individuals and trusts can retain more assets, achieving significant tax savings. These benefits can be substantial, as illustrated by the examples above, where tax savings ranged from £20,000 to £100,000.
In conclusion, the successful use of hold over relief can result in significant tax savings and more efficient asset transfers. By understanding the principles and application of hold over relief, individuals and trusts can make informed decisions about their tax strategy.
Frequently Asked Questions about Hold Over Relief
As we have explored the concept of hold over relief and its relationship with trusts, it’s natural to have questions about its application. We address some of the most common queries to provide clarity on this valuable relief.
Key Questions Answered
Individuals often ask about the eligibility criteria for hold over relief, the types of assets that are covered, and the process of claiming the relief. Understanding these aspects is crucial for effective succession planning and trust administration.
When considering succession planning services, it’s essential to know how hold over relief can impact your estate. Our team can guide you through the process, ensuring you make informed decisions about your assets and trust administration solutions.
Resources for Further Information
For more information on hold over relief and its implications, we recommend exploring resources that provide detailed guidance on trust administration and succession planning. By doing so, you can gain a deeper understanding of how to protect your family’s assets and plan for the future.
FAQ
What is hold over relief and how does it work in the context of trusts?
Hold over relief is a tax relief that allows individuals to defer capital gains tax when gifting assets to others, including trusts. This relief is essential for estate planning, as it enables individuals to pass on assets to their beneficiaries without incurring significant tax liabilities.
What are the eligibility criteria for claiming hold over relief?
To be eligible for hold over relief, the gift must be made to a qualifying person or trust, and the donor must have owned the asset for a certain period. The specific eligibility criteria are outlined in the relevant legislation.
What types of assets are covered by hold over relief?
Hold over relief can be claimed on a range of assets, including business assets, shares, and other investments. However, the specific types of assets covered may be subject to certain conditions and restrictions.
How do trusts benefit from hold over relief in terms of tax-efficient trust structures?
Trusts can benefit from hold over relief by deferring capital gains tax on the transfer of assets to the trust. This can help to minimize tax liabilities and ensure that the assets are passed on to the beneficiaries in a tax-efficient manner.
What are the tax implications of hold over relief, including capital gains tax mitigation and inheritance tax planning?
Hold over relief can have significant tax implications, including the deferral of capital gains tax and potential inheritance tax benefits. Understanding these implications is crucial for individuals who wish to make informed decisions about their estate planning.
How do I claim hold over relief, and what documentation is required for succession planning services?
To claim hold over relief, individuals must complete the relevant forms and provide supporting documentation, including details of the gift and the recipient. The specific documentation required may vary depending on the circumstances.
What are the common challenges that may arise when claiming hold over relief, and how can trust administration solutions help?
Common challenges when claiming hold over relief include ensuring that the eligibility criteria are met and providing accurate documentation. Trust administration solutions can help to navigate these challenges and ensure that the relief is claimed correctly.
Can hold over relief be used in conjunction with other estate planning strategies, such as inheritance tax planning?
Yes, hold over relief can be used in conjunction with other estate planning strategies, including inheritance tax planning, to minimize tax liabilities and ensure that assets are passed on to beneficiaries in a tax-efficient manner.
How can I ensure that I am using hold over relief effectively as part of my overall estate planning?
To ensure that you are using hold over relief effectively, it is recommended that you seek professional advice from a qualified expert who can provide guidance on the specific circumstances and help you to develop a comprehensive estate planning strategy.
Section 165 vs Section 260 Holdover Relief: Which Applies to Trust Transfers?
One of the most important distinctions in trust and estate planning is understanding which statutory provision governs holdover relief in any given situation. The two principal routes — section 165 of the Taxation of Chargeable Gains Act 1992 (TCGA 1992) and section 260 TCGA 1992 — operate differently and apply to different types of transfers. Choosing the wrong route, or failing to recognise which applies, may result in an unexpected capital gains tax (CGT) liability at a time when the settlor has no liquid funds to meet it. HMRC’s Capital Gains Manual provides detailed guidance on both provisions at CG66880 (s165) and CG67030 (s260).
Section 165: Business and Agricultural Assets
Section 165 relief is typically available where an individual transfers business assets or agricultural property — including shares in qualifying trading companies — either outright or into trust. The asset transferred must generally be used in a trade carried on by the transferor, a personal company, or fall within the definition of agricultural property. Crucially, s165 relief is available regardless of whether the transfer gives rise to an immediate inheritance tax (IHT) charge. This makes it particularly relevant for family business owners and agricultural landowners transferring assets into trust where the asset may also qualify for Business Relief or Agricultural Relief for IHT purposes. In our experience, the combined effect of holdover relief under s165 and IHT Business Relief can be significant: a business asset worth £1,000,000 transferred into a discretionary trust may generate no immediate IHT charge and no immediate CGT liability if both reliefs apply correctly.
Section 260: Transfers That Are Immediately Chargeable to IHT
Section 260 relief applies where the transfer is a chargeable transfer for IHT purposes — most commonly, a transfer into a discretionary trust that exceeds the available nil-rate band of £325,000. Where a settlor transfers assets into a discretionary trust, the transfer is typically a chargeable lifetime transfer (CLT), and a 20% entry charge may arise on the value above the nil-rate band. In these circumstances, s260 is engaged, and holdover relief may be claimed on any asset — not just business or agricultural property — provided the transfer is immediately chargeable to IHT. This is a broader and, in some respects, more flexible provision than s165, though the IHT entry charge itself remains payable unless the value transferred falls within available exemptions and reliefs.
How Holdover Relief Interacts with Discretionary Trust Entry Charges
When assets are transferred into a discretionary trust and a 20% entry charge arises, the settlor faces a potential double exposure: CGT on the gain accrued to the date of transfer, and IHT on the chargeable transfer. Section 260 holdover relief addresses the CGT element by allowing the gain to be deferred rather than crystallised — the gain is effectively held over and the trustees acquire the asset at the settlor’s original base cost. The trustees then carry a latent CGT liability, which may become payable when they eventually dispose of the asset. With trustees subject to CGT at 20% on most gains and 24% on residential property gains from 2024/25, and individuals now benefiting from only a £3,000 annual exempt amount, careful planning around when trustees should realise gains is increasingly important. It is worth noting that holdover relief under s260 does not reduce the IHT entry charge — the two taxes operate independently, and professional advice from a regulated tax adviser should be sought before proceeding.
Common Questions About Holdover Relief and Trusts
What is holdover relief for a trust?
Holdover relief is a CGT deferral mechanism that generally allows the gain arising on a transfer of assets into — or in some cases out of — a trust to be deferred rather than immediately taxed. Instead of the transferor paying CGT on the gain at the point of transfer, the gain is held over and the trustees (or beneficiary) acquire the asset at the transferor’s original base cost. This means the deferred gain will typically become chargeable when the trustees eventually dispose of the asset. The relief does not eliminate the CGT liability permanently; it postpones it, which may still represent a substantial planning advantage where assets are intended to be held long-term within the trust structure.
Can trusts claim holdover relief?
Yes, in most cases holdover relief can be claimed on transfers both into and out of certain trusts, subject to the relevant conditions being met. The claim is generally made jointly by the transferor and the trustees (or the transferor and the beneficiary where the asset is appointed out to a beneficiary absolutely). It is important to note that both parties must sign the holdover election on HMRC’s form HS295, and the claim must typically be made within four years of the end of the tax year in which the disposal occurred.
What are the restrictions on holdover relief?
There are several important restrictions that may limit or prevent a holdover relief claim. Section 165 relief is generally restricted to qualifying business and agricultural assets, meaning purely investment assets — such as buy-to-let property or listed shares held as investments — will not typically qualify under that provision. Section 260 relief, whilst broader in scope, is restricted to transfers that are immediately chargeable to IHT; transfers that are exempt or potentially exempt (such as outright gifts between individuals) will not generally qualify. Additionally, where a settlor retains an interest in a trust, anti-avoidance provisions may apply to restrict or deny relief. HMRC’s guidance at CG67100 covers several of the key restrictions in detail.
What is the 45-day holding rule for a discretionary trust?
The 45-day rule is an important but sometimes overlooked condition that applies specifically to shares and securities transferred into a discretionary trust where a holdover relief claim is intended. Under the relevant provisions, if the trustees dispose of the asset within 45 days of acquisition, the holdover relief claim may be withdrawn and the original gain can become immediately chargeable. In practice, this means that where a settlor transfers shares into a discretionary trust and the trustees sell those shares shortly afterwards — for example, as part of a pre-arranged transaction — HMRC may challenge the validity of the holdover claim. In our experience, this is an area where the timing of any planned disposals by trustees must be considered carefully before the transfer is made, and the structure should be reviewed in advance by a suitably qualified tax adviser.
What is a CGT holdover relief discretionary trust?
The phrase CGT holdover relief discretionary trust typically refers to a discretionary trust used as part of an estate planning strategy in which holdover relief is claimed at the point of settlement to defer the CGT that would otherwise arise on the transfer of assets into the trust. Discretionary trusts are a commonly used structure in this context because transfers into them are generally immediately chargeable to IHT — making them eligible for s260 holdover relief regardless of the nature of the underlying asset. Where the value transferred does not exceed the available nil-rate band of £325,000 (and no other CLTs have been made in the preceding seven years), no IHT entry charge will arise either, meaning that in appropriate circumstances it may be possible to transfer assets into the trust with neither an immediate CGT nor an immediate IHT liability. With trustees facing CGT at up to 20% (or 24% on residential property) from 2024/25, and individuals entitled to only a £3,000 annual exempt amount, deferring gains through a properly structured discretionary trust can represent meaningful tax efficiency — though the long-term CGT exposure within the trust should always be factored into the overall planning strategy.