Holdover Relief and Rollover Relief have both been around for a fairly long time, which means you need to be familiar with what they are at the basic level. However, as with nearly all tax-related matters, there is always ‘fine print’ that we tend to miss when it comes to knowing the underlying rules. Add to that the fact that tax mattersfor any individual can be a little different, owing to their business circumstances.

With that said, let’s bring you up to speed on what both reliefs mean.

What is Gift Holdover Relief?

Also referred to as CGT (capital gains tax) holdover relief, gift holdover relief refers to the exemption of paying any tax on the increase in value of qualifying business assets – when you give them away as a gift or sell them at a reduced price to the recipient.

Therefore, the recipient of the assets shall pay the gift holdover relief, either from the lower value he/she received or the original cost at which the asset was disposed of. Gift holdover relief is not paid on any gifts given to your spouse or charitable organisations – transactions like that are automatically exempt from capital gains tax. So, to put it in a nutshell, you may claim gift holdover relief for:

  • Business assets given away as a gift
  • Unlisted shares in trading companies given away as a gift
  • Agricultural land given away as a gift
  • Gifts given for Inheritance Tax purposes (these are chargeable transfers)
  • Specific gifts which are exempted from Inheritance Tax

The Tax Manual written up by HMRC contains all the technical information on how capital gains operate and the subsequent reliefs available on them.

CGT Holdover Relief is typically referred to as “gift holdover relief” because it is usually claimed when you pass on the entire business or some of its assets to another individual, in order to aid or assist the latter for any number of reasons. Gift holdover relief may also be claimed on shares, but this depends on the type of business along with the respective percentages held. You have the option of either giving away the assets for free or selling them at a reduced cost compared to their actual worth.

Gift holdover relief is an invaluable tool for any business owner, as it is a kind of CGT deferral – any tax deferred in a 1-year business period is basically money saved, which does not need to be paid out – not yet, anyway. If you consult with a tax accountant and work out things properly, you can actually create multiple tax deferrals through CGT holdover relief, which you might not even have expected.

What is Business Rollover Relief?

Business rollover relief lets a trader defer a capital gains tax payment, where the proceeds of a disposed business asset are re-invested into a new business asset. This deferral is achieved by deducting the chargeable gain from the new asset’s cost. The proceeds can either be partially or fully re-invested.

Business rollover relief may only be claimed by individuals who are running a business as a sole trader or through a partnership. In addition, if you are running two trades, it’s not necessary for the disposal and subsequent acquisition to occur in the very same trade. So, you may certainly make a gain on asset disposal in one trade and buy a used asset in another. But for business rollover purposes, both trades will be regarded as a single trade.

Business rollover relief is also available if you:

  • Operate a business where you’re offering furnished holiday lets
  • Manage commercial woodlands to make a profit
  • Carry on in a profession, vocation, workplace or any employment-based job
  • Provide an asset to your personal company (e.g. a company where you have 5% or more voting rights) which has been used or utilised in the daily running of the company

Business rollover relief may also be claimed by a company selling an asset and then reinvesting the proceeds in a temporary or replacement asset.

There are certain classes of assets which qualify for rollover relief, whether they are old or new. These typically include:

  • Buildings and land
  • Machinery and fixed plant
  • Goodwill

The old asset and new asset may not necessarily be in the same category; fixed refers to ‘immovable’ – so, as an example, the sale of a printing press may qualify for rollover relief, while the disposal of assets like lorries, tractors and vehicles will certainly not.

Quick recap and closing thoughts

Holdover relief only applies to unincorporated partnerships, sole traders and trusts where a business asset is sold at a value lower than its actual market value, in order to benefit the recipient. Holdover relief may also be referred to as gift holdover relief when qualifying shares or business assets are transferred to a ‘connected’ person, such as a spouse or business associate. The CGT on the asset effectively defers until the next disposal, which helps to avoid any capital gains tax payable, helping you save money.

You must have the recipient’s consent to claim the relief, with the only exception being when the asset isn’t gifted to a trust.

Business rollover relief is available on certain classes of assets sold, such as buildings and land, goodwill, and plant and machinery. This kind of relief is available when you wish to replace one business asset with another.

For example, you want to upgrade to a larger warehouse or storage facility and want to sell off the current one. If you elect for rollover relief and buy another warehouse in no later than 3 years after that, the gain is added to the base cost of the new asset, effectively ‘rolling’ it in, hence the term.

However, you can also claim for the previous year – assuming you buy another warehouse 6 months prior to selling the original one, you may elect for business rollover relief for the second warehouse – but only if it was purchased within the year prior to the sale of the original one.

It can sometimes be complicated to decide when to elect for gift hold over relief or business rollover relief, and what the benefits are of doing so. Get in touch with our tax consultant today for tailored advice.