On 23 June 2026, HMRC published draft legislation which, if enacted, will bring company assets which are subject to the intangible fixed assets (IFA) regime or which qualify for the substantial shareholding exemption (SSE) within the scope of the relief restriction calculation for CGT gift holdover relief given under s165 TCGA 1992. This measure was announced at Budget 2025, but no timescale for introduction was given at the time.
These changes could affect individuals gifting shares in ‘trading’ companies or holding companies of trading groups, where the company / group holds assets which aren’t used in their trade and holds assets which qualify for SSE or are subject to the IFA regime.
Relief under s165 defers some or all of the CGT charge arising on qualifying gifts or transfers at undervalue, when claimed. In the case of a gift of shares in a trading company or trading group, the relief is restricted if the company or group holds ‘chargeable assets’ which are not used for the purposes of the company or group’s trade. The restriction is calculated on a proportional basis, i.e. if 5 percent of the group’s chargeable assets are non-trade, then 5 percent of the gain will not be eligible for relief. Non-trade assets could include assets such as investment properties held within an otherwise trading company.
The current exclusion of IFAs and SSE assets from the restriction calculation can lead to mismatches in the tax treatment of shareholders in very similar companies. Goodwill created on or after 1 April 2002 falls within the IFA regime, but goodwill created before this date is a chargeable asset. This means that, in some cases, the amount of holdover relief available to a shareholder can vary purely based on when a company’s goodwill was created.
The impact of the proposed changes can be illustrated in the following example:
- Mr Brown holds shares in the holding company of a trading group. He will gift the shares to his daughter and plans to claim s165 holdover relief on the disposal; the shares currently stand at a gain of £10 million; and
- The group holds £9 million of chargeable assets used in its trade. It also holds a commercial investment property worth £1 million which generates rental income but is not used in the trade. Furthermore, the holding company holds £5 million of goodwill created in 2023 when it acquired a trading subsidiary.
If the gift is made before 6 April 2027, Mr Brown will be able to claim £9 million of holdover relief and £1 million of his gain will be immediately chargeable, as the relief is restricted in respect of the rental property; £1 million out of £10 million of chargeable assets, or 10 percent of the gain.
If the gift is made on or after 6 April 2027, Mr Brown would instead be able to claim £9.33 million of holdover relief. This is because the goodwill will be considered a chargeable asset, so the restriction is now in respect of £1 million out of £15 million of chargeable assets, or 6.67 percent.
These changes will not affect transfers into or out of trust which are subject to inheritance tax; in that case, holdover relief is given under s260 TCGA 1992 rather than s165, and this restriction of relief does not need to be considered.
If you wish to discuss these changes and how they may affect you, please speak to the authors or your usual KPMG in the UK contact.