A gift is a disposal for capital gains tax. Section 17 of the Taxation of Chargeable Gains Act 1992 replaces the price actually paid (nothing, for a gift) with the asset’s market value, so the donor is taxed on a gain they never received in cash. The charge can be deferred by holdover relief for business assets or for gifts that are immediately chargeable to Inheritance Tax, and gifts to a spouse, civil partner or charity carry no gain at all.
Tax investigation insurance from £108.75 a year (£9.06 a month).Pays up to £100,000 of your accountant's fees if HMRC opens an enquiry. No excess. Buy online in a few minutes.
Why is a gift taxed as if the asset had been sold?
Capital gains tax charges the gain on a disposal, and giving something away is a disposal just as much as selling it. Without a special rule, the donor would show proceeds of nil and a loss, and the recipient would start with a base cost of nil. Section 17(1)(a) TCGA 1992 prevents that by deeming both the disposal and the acquisition to be for a consideration equal to market value wherever a person acquires or disposes of an asset “otherwise than by way of a bargain made at arm’s length”, and it names gifts and transfers into a settlement as the leading examples.
Market value is defined in section 272 as the price the asset might reasonably be expected to fetch on a sale in the open market, with no discount for the assumption that a whole holding is placed on the market at once. HMRC’s helpsheet HS295 puts it simply: in the absence of holdover relief, you are treated as though you had disposed of the asset for its market value.
The same deemed figure becomes the recipient’s acquisition cost. That symmetry is the point of the rule: the gain up to the date of the gift is taxed on the donor, and only growth after the gift is taxed on the recipient when they later sell.
When else does market value replace the actual price?
The rule is wider than outright gifts. It also applies where:
- an asset is sold at an undervalue to help the buyer, because that is not a bargain at arm’s length (HS295 gives the example of a shop worth £100,000 sold to a brother for £40,000, taxed on £100,000);
- the consideration cannot be valued, or the asset is given in connection with an office or employment or in return for services (section 17(1)(b));
- the parties are connected persons, because section 18(2) treats every transaction between them as not at arm’s length, whatever price was agreed.
Connected persons are defined in section 286. For an individual they include a spouse or civil partner, relatives (brothers, sisters, ancestors and lineal descendants), the spouses of those relatives and the relatives of a spouse, plus business partners and companies the individual controls. The wider picture is covered in connected persons for tax.
There is one narrow exception in section 17(2). Market value is not imposed on an acquisition where there is no corresponding disposal and the consideration is nil or below market value, for example when a company issues new shares to someone.
Worried about an HMRC check? Tax investigation insurance pays your accountant’s fees if HMRC opens an enquiry or compliance check. Solar Protect cover pays up to £100,000 with no excess. It never pays tax, interest or penalties.
From £108.75 a year (£9.06 a month) for individuals, £117.57 for sole traders and £207.50 for companies and partnerships, including IPT and the £20 admin fee.
See my price in 2 questions or call 01795 841 310.
★★★★★ Rated 4.9 out of 5 on Trustpilot from over 160 reviews
What if the gift would show a loss?
A gift of an asset worth less than it cost produces an allowable loss on the market value basis, but if the recipient is connected with the donor the loss is restricted. Section 18(3) allows it to be set only against a gain on some other disposal to the same person while they are still connected. These are often called clogged losses. Giving a loss making asset to a child therefore rarely produces a usable loss, whereas selling it to an unconnected buyer would.
Which gifts carry no immediate gain?
Three situations override the market value rule altogether:
- Spouses and civil partners. Section 58 treats a transfer between spouses or civil partners living together as made for whatever figure produces neither a gain nor a loss, so the recipient inherits the donor’s base cost. Separated couples have a time limited extension; see transfers between spouses.
- Charities. Section 257 switches off section 17 for gifts to a charity, a registered club or a body in Schedule 3 to the Inheritance Tax Act 1984, again on a no gain no loss basis. If the charity pays more than your base cost, GOV.UK says the gain is worked out on what it actually paid.
- Death. Passing assets on death is not a disposal by the deceased under section 62, and the beneficiaries take the value at death; see the tax free uplift on death.
How can holdover relief defer the gain?
Holdover relief does not exempt the gain. It passes it to the recipient by reducing their base cost by the held over amount, so the tax is collected when they eventually sell. There are two main routes.
Gifts of business assets (section 165)
Relief is available where an individual disposes, otherwise than at arm’s length, of an asset used in a trade, profession or vocation carried on by the donor or by the donor’s personal company, or of shares in a trading company or holding company of a trading group that are unlisted or are in the donor’s personal company. HS295 explains that a personal company is one in which you can exercise at least 5% of the votes, and that the relief is restricted where a building was only partly used in the trade or the company holds chargeable non business assets. The claim is made jointly by donor and recipient, except on a gift to trustees where the donor claims alone.
Gifts that are chargeable transfers for Inheritance Tax (section 260)
Section 260 applies to any type of asset, but only where the gift is a chargeable transfer for Inheritance Tax and not a potentially exempt transfer. HS295 notes that the most common chargeable transfer is a gift into a trust, and that an outright gift from one individual to another is normally a potentially exempt transfer, so it does not qualify. Gifts into settlor interested trusts are excluded from both reliefs.
If the recipient pays something, HS295 explains that the donor is taxed immediately on any excess of the payment over their base cost, and only the balance is held over. Fuller detail on conditions and claims is in gift holdover relief.
Can the tax be paid in instalments if no relief is available?
Yes, for some assets. Section 281 lets the donor elect to pay the tax on a gift in 10 equal yearly instalments where holdover relief is unavailable or only partly available, and the asset is real property or an interest in it, a controlling holding of shares or securities, or shares or securities in a company not listed on a recognised stock exchange. Interest runs on the unpaid balance, and the whole outstanding amount becomes due at once if the gift was to a connected person and the asset is later disposed of for value.
How does it work on a typical family gift?
Illustration only. Aisha owns a let flat she bought for £150,000. She gives it to her son when it is worth £250,000.
| Step | Amount |
|---|---|
| Deemed proceeds at market value | £250,000 |
| Less cost | £150,000 |
| Gain | £100,000 |
| Less annual exempt amount for 2026 to 2027 | £3,000 |
| Taxable gain | £97,000 |
| Tax at 24% (Aisha is a higher rate taxpayer) | £23,280 |
A let flat is not a business asset for section 165, and an outright gift to her son is a potentially exempt transfer, so section 260 is not available either. Aisha has to fund the tax without any sale proceeds, although she could elect to pay by instalments under section 281. Her son’s base cost is £250,000. Had Aisha instead given the flat to a discretionary trust for her grandchildren, the gift would be a chargeable transfer and a section 260 claim would leave the trustees with a base cost of £150,000. The rates are confirmed on GOV.UK for gains from 6 April 2026; see also capital gains tax rates. The property specific points, including Stamp Duty Land Tax and living in a gifted home, are covered in gifting property to children.
What mistakes come up most often?
- Reporting the price actually charged to a family member instead of market value. Section 18 makes the agreed price irrelevant between connected persons.
- Assuming a gift to an adult child qualifies for section 260. It does not, because it is a potentially exempt transfer.
- Forgetting that a holdover claim needs the recipient’s signature as well as the donor’s, except for gifts to trustees.
- Arguing about values unnecessarily. Statement of Practice SP8/92, described in HS295, lets a fully held over gain be claimed without agreeing the market value, provided the base cost is actual expenditure.
- Expecting a usable loss on a gift to a relative. The loss is clogged under section 18(3).
- Treating a held over gain as gone. It sits inside the recipient’s lower base cost, as explained in allowable costs for capital gains.
If HMRC opens a check into your return, tax investigation insurance pays your accountant’s fees. Solar Protect cover pays up to £100,000 with no excess; it never pays tax, interest or penalties. Read how our cover works or get a quote.
Related Accountapedia entries
- Gifting a mortgaged property: the CGT effect
- Gifting shares in a family company: CGT
- Section 260 holdover relief on gifts into trust
- Capital gains for unmarried couples
- Giving assets away now or leaving them in your will
- Partnership capital gains and Statement of Practice D12
- Classic cars as company cars: the market value rule
Sources
- legislation.gov.uk: Act 1992 c. 12, section 17
- legislation.gov.uk: Act 1992 c. 12, section 272
- GOV.UK: Hs295 relief for gifts and similar transactions 2026
- legislation.gov.uk: Act 1992 c. 12, section 18
- legislation.gov.uk: Act 1992 c. 12, section 286
- legislation.gov.uk: Act 1992 c. 12, section 58
- legislation.gov.uk: Act 1992 c. 12, section 257
- GOV.UK: Gifts
- legislation.gov.uk: Act 1992 c. 12, section 62
- legislation.gov.uk: Act 1992 c. 12, section 165
Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.