Gift Relief applies to Lifetime Gifts and Sales at Undervalue
It allows the gain on some lifetime gift or the gain on some sales at undervalue (the gift element) to be deferred until the asset is subsequently sold by the recipient of the gift (ie the donee).
The gift must be a QUALIFYING ASSET and a claim must be made by both DONOR and DONEE.
The key to understanding gift relief is to use MARKET VALUE to determine the CAPITAL GAIN to be deferred AND to use MARKET VALUE to determine the donee’s ACQUISITION COST. The deferred CAPITAL GAIN is then deducted from the donee’s ACQUISITION COST to determine the donee’s BASE COST of the asset.
- Unquoted shares of a trading company. (No ownership requirement).
- Quoted shares in a personal trading company (>5% ownership requirement)
- Assets used in the trade of the donor (sole trade / partnership) or the donor’s personal trading company (>5% ownership)
Restrictions to Gift Relief
NON BUSINESS USE
If there is an element of NON-BUSINESS use of the asset, either because part of the use was for business and part private, or because the asset was NOT used for business purposes for the WHOLE period of ownership, then the amount of GIFT RELIEF is RESTRICTED. Only the business portion of the gain is eligible for GIFT RELIEF.
SHARES IN THE DONOR’S PERSONAL TRADING COMPANY (UNQUOTED >5% AND QUOTED >5%)
If the company holds chargeable non-business assets then the portion of the gain that is eligible for gift relief is calculated as;
TOTAL GAIN x (MV of chargeable business assets (CBA) / MV of chargeable assets (CA))
There is NO REQUIREMENT for the individual to work for the company, if an individual gifts shares in a personal trading company.
There is NO REQUIREMENT for the individual to own the gift for a specified time period before making the gift.
If the recipient of a gift emigrates within 6 years of the end of the tax year in which the gift was made then the deferred gain will crystallise and become chargeable on the donee.