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My client owns a commercial building that is currently used in the trade of a limited company that is owned equally between him and his daughter. The building was previously rented out to third parties for a few years. The client is considering gifting the building to his daughter and is concerned about capital gains tax (“CGT”) as the property has appreciated in value significantly. I believe there is potential for a gift relief claim, but is there a restriction if the building has only been used in the trade of his company for the last few year, or do we simply look at the point of disposal and whether it is a qualifying asset?

All legislative references are to Taxation of Chargeable Gains Act 1992 unless otherwise specified.

When considering whether gift relief applies in your client’s circumstance, we firstly look to section 165, which stipulates the conditions to be met. Where there is a disposal otherwise than under a bargain at arm’s length, provided it is a disposal of a qualifying asset, then the transferor and transferee can make a joint election for gift relief.

Whether the asset transferred is a qualifying asset for gift relief is set out in section 165(2). For your client, he has an interest in an asset that is used in the trade of his personal company, therefore, we can conclude that gift relief would be available. Personal company is defined as a company in which you hold at least 5% of the voting rights.

The effect of claiming gift relief is to reduce the acquisition cost for the transferee by the gain held over. In your scenario, this will mean that the daughter will take on the same base cost as father as it is an outright gift. On a subsequent disposal of the asset by the daughter, there will effectively be a larger gain due to the lower base cost.

Perhaps the part that is overlooked sometimes, are the restrictions on the amount of gift relief. Now that we have determined that gift relief is available, we should ask how much is available?

The amount of gain that can be held-over is restricted, for example, where there is some consideration changing hands (section 165(7)) or where there is a gift of shares, the held-over gain could also be restricted if the company in which the shares are gifted has non-business chargeable assets (Sch 7, para 7), such as shares held as investments.

In your client scenario, there is a restriction on the amount of gain that can be held-over because the property was not always used in the trade of the personal company. Sch 7 para 5 reduces the amount of the gain that can be held-over by multiplying the gain by A/B with A being the number of days that the building was not used in the trade of the personal company and B being the number of days of ownership.

Therefore, whilst gift relief is available to your client, the amount of gain that can be held-over is restricted. It is important to ensure that where there is a potential claim to gift relief, we should always consider the possible restrictions to the amount of relief as this could affect the client’s decision making especially where there is CGT to pay.


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Before joining the team, Vivienne had worked for small boutique tax firms which gave her exposure to a wide variety of tax. She dealt with tax issues mostly for owner-managed businesses and high net worth individuals. Vivienne is a member of the Association of Tax Technicians and is currently in the middle of studying to become a Chartered Tax Advisor.

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