Gifting your business to a family member or friend is often a desirable exit route, as opposed to selling your business. Whereas selling your business will likely incur Capital Gains Tax (CGT), if you have made a profit on your assets, gift hold-over relief means you personally do not pay CGT, and the liability is passed onto your successor.
If you’re exiting the whole of your business then gifting your ownership shares is the likely route to follow. However, you may wish to give away assets in your business in certain scenarios. Either way, there are certain eligibilities that have to be met. If you’re giving away business assets you must have at least 5% of voting rights in your company and use the assets in your business. If you’re giving away shares then the company must be your personal company, and cannot be listed in a recognised stock exchange. The company’s main activities must also be in trading, for example providing goods or services, rather than non-trading activities like investment. Finally, it cannot be a holding company that has one or more 51% subsidiaries.
If you have given away assets then there is no CGT to pay, providing you follow the gift hold-over process accordingly. However, if you sold the asset for less than its market value, but still made a gain, then you may still need to pay CGT yourself. An example of this is if the asset you bought for £15k now has a market value of £100k, but you sell it to your relative for only £60k to help them. Here you have a taxable gain of £45k (£60k - £15k) which is liable for CGT, but you can get gift hold-over relief for the remaining £40k.
Whatever your exit route is, the transferor and the transferee must claim jointly for gift hold-over relief. The held-over gain should be calculated and agreed between both parties. This agreed amount is then factored in when the transferee eventually sells the asset or shares, ensuring they pay the correct CGT liability that has been passed on.
If the transferee emigrates within 6 years of the end of the tax year in which the gift was made, and the asset has not been disposed of, then they will be charged on the held-over gain. If the transferee dies, then the normal exemption on death will apply.
This article is designed as a brief introduction to the topic and everyone’s situation is always unique. If you have any questions or would like some advice on your own situation, please submit a message on the contact page and I will be happy to help.
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