Capital Gains Tax on Gifts: Your Complete Guide

What Is Capital Gains on Gifts?

CGT is a tax on the profit made when you sell or dispose of an asset. When you give an asset as a gift, HMRC treats this as a "disposal," and you may need to pay CGT on the gain, calculated as the difference between the asset's market value at the time of gifting and its acquisition cost.

The person receiving the gift does not pay CGT; the liability rests with the person giving the gift. However, certain exemptions and reliefs can reduce or eliminate this tax liability.

How Is Capital Gains Tax on Gifts Calculated?

To calculate CGT on a gifted asset:

1. Determine the Market Value: HMRC uses the market value of the asset at the time of the gift, not the sale price (even if no money is exchanged).

2. Subtract the Acquisition Cost: Deduct the original purchase price and any allowable costs (e.g., improvement expenses).

3. Apply Reliefs and Allowances: Deduct the Annual Exemption Allowance and any other applicable reliefs.

For example:

• Original purchase price of shares: £5,000

• Market value at time of gift: £15,000

• Gain: £10,000

• After deducting the Annual Exemption Allowance (£3,000 for 2024), the taxable gain is £7,000.

When Does CGT Not Apply to Gifts?

Certain gifts are exempt from CGT, including:

• Gifts to Spouses or Civil Partners: Transfers between spouses or civil partners are exempt from CGT.

• Gifts to Charities: Gifts to registered charities are not subject to CGT.

• Assets Below the Annual Exemption Allowance: If the gain on the gift is within your annual allowance, no CGT is due.

It’s important to note that gifts made as part of your estate planning may have additional Inheritance Tax (IHT) implications, which should also be considered.

Reliefs Available for Capital Gains Tax on Gifts

Certain reliefs can help reduce or defer CGT liability on gifts:

Holdover Relief: If the asset qualifies (e.g., business assets or agricultural property), you may be able to defer CGT until the recipient disposes of the asset.

Private Residence Relief (PRR): If the gift is a property that has been your main residence, PRR may apply to reduce or eliminate CGT.

Entrepreneurs’ Relief (now Business Asset Disposal Relief): If you are gifting shares or a business asset, gains may qualify for a reduced CGT rate of 10%.

Reporting Capital Gains Tax on Gifts

If a CGT liability arises from gifting an asset, you must report it to HMRC. Key points include:

Reporting Timeline: CGT must be reported as part of your Self-Assessment Tax Return by the relevant deadline.

Records to Keep: Document the asset’s market value, acquisition cost, and any allowable expenses at the time of gifting.

Failure to report the gain accurately and on time may result in penalties and interest charges.

Frequently Asked Questions About Capital Gains Tax on Gifts

Q: Do I pay CGT if I gift an asset to my child?

A: Yes, gifting to a child is treated as a disposal for CGT purposes. You must calculate the gain based on the asset’s market value at the time of the gift.

Q: Are all gifts to family members taxable?

A: Not all gifts are taxable. Transfers to a spouse or civil partner are exempt, but gifts to other family members may trigger CGT if the asset has increased in value.

Q: Can I reduce CGT by splitting the gift with my spouse?

A: Yes, transferring part of the asset to your spouse before making the gift can allow both of you to use your Annual Exemption Allowance, reducing the taxable gain.

Q: How does Holdover Relief work?

A: Holdover Relief allows you to defer CGT on certain qualifying assets (e.g., business assets). The recipient takes on the deferred gain and pays CGT when they dispose of the asset.

Q: Is there a time limit for reporting CGT on gifts?

A: Yes, gains must be reported as part of your Self-Assessment Tax Return by the 31st January following the end of the tax year in which the gift was made.

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