You own 100% of your limited company. You are planning to sell it in the next 12 to 18 months. A family member has a low income and unused capital gains tax (CGT) allowance. You think: "I'll gift them some shares now, they sell later, and we split the gain across two sets of allowances."
It is a common thought. And it can work. But only if you understand exactly how HMRC treats the gift of shares to a family member for CGT purposes. Get it wrong and you trigger a tax bill immediately, lose holdover relief, or inadvertently create a tax liability for the recipient that outweighs the benefit.
This article explains what happens when you gift shares family member CGT planning, when holdover relief applies, and where the traps are hiding.
The Basic Rule: A Gift Is a Disposal at Market Value
HMRC does not distinguish between selling shares for cash and giving them away. For CGT purposes, a gift is a disposal at open market value. You are treated as if you received that value, even though no money changed hands.
If you gift shares worth £100,000 to your spouse, your deemed proceeds are £100,000. Your base cost might be £1 (the subscription price for 100 ordinary shares). Your gain is £99,999.
That gain goes on your self assessment return. You pay CGT on it in the usual way, unless a relief applies.
The recipient inherits your base cost. So when they later sell the shares, their gain is calculated from your original cost, not the value at the date of the gift. This is called "uplifted base cost" only if holdover relief is claimed. Without holdover relief, the recipient's base cost is the market value at the date of the gift.
Let's unpick that.
Gifting to a Spouse or Civil Partner: The Spouse Exemption
Gifts between spouses and civil partners are treated differently. There is no gain and no loss on the transfer. The shares are treated as if they passed at a value that produces no gain and no loss for the donor.
The recipient inherits the donor's original base cost. So if you subscribed for shares at £1 each and gift them to your spouse, their base cost is £1 per share. When they sell, they pay CGT on the full gain from £1 to the sale price.
This means gifting to a spouse does not eliminate the gain. It defers the tax to the spouse's return. If your spouse has unused basic rate band (£50,270) and you are a higher rate taxpayer, this can save 20% CGT (24% vs 18% on non-residential gains).
But the gain is still taxable. The spouse exemption does not wipe out the gain. It just shifts who pays the tax.
And there is a trap: if you gift shares to your spouse and they sell within the same tax year, the gain is theirs. But if you gift shares shortly before a sale and HMRC sees the arrangement as pre-ordained, they may challenge under the "settlement" provisions or the "associated operations" rule. In practice, genuine gifts made well in advance of a sale (12+ months) are generally respected.
Gifting to Children or Other Family Members: Market Value Rules Apply
Gifting shares to a child, sibling, parent, or other non-spouse family member triggers a disposal at market value. You are liable for CGT on the gain from your base cost to the market value at the date of the gift.
If you gift shares worth £200,000 with a base cost of £1, your gain is £199,999. You pay CGT at 14% (if BADR applies and the shares have been held for 2+ years) or 24% (if BADR does not apply, for disposals from 30 October 2024).
The recipient's base cost becomes the market value at the date of the gift. So if they sell later at the same value, they have no gain. If the value has risen, they pay CGT on the increase from the date of the gift.
This is the core of the planning opportunity. You crystallise the gain at the date of the gift. The recipient gets a step-up in base cost. If they sell soon after, their gain is minimal. You use your CGT annual exempt amount (£3,000 for 2025/26) and potentially your basic rate band. They use theirs.
But the tax is due on the gift itself. You need cash to pay it, unless holdover relief applies.
Holdover Relief: When You Can Defer the CGT on a Gift
Holdover relief (under TCGA 1992, s.165) allows you to defer the gain on a gift of business assets, including shares in a trading company. The gain is "held over" and deducted from the recipient's base cost. No CGT is due on the gift itself. The recipient inherits your original base cost, so when they sell, they pay CGT on the full gain from your cost to their sale price.
Holdover relief is only available if:
- The shares are in a trading company (or holding company of a trading group). Investment companies and property companies do not qualify.
- The recipient is UK resident (or the shares are in a UK company and the recipient is not UK resident, but the conditions are tighter).
- Both donor and recipient make a joint claim to HMRC. This is done on the CGT pages of the self assessment return, using the "gifts hold-over relief" section.
- The shares have been held for at least 2 years if BADR would otherwise apply (but holdover relief and BADR are mutually exclusive on the same disposal).
If you claim holdover relief, you cannot also claim BADR on the gift. BADR gives a lower rate of tax (14% in 2025/26) but requires the tax to be paid. Holdover relief defers the tax entirely but at the cost of the recipient inheriting your low base cost.
Which is better depends on your circumstances. If you have no cash to pay the CGT on a large gift, holdover relief is essential. If you have cash and want to lock in the 14% BADR rate before it rises to 18% in April 2026, paying the tax now might be the right call.
The Interaction With BADR: A Critical Choice
If you gift shares to a family member and they sell within 2 years, the recipient cannot claim BADR on their sale. BADR requires the shares to have been held for at least 2 years prior to disposal. The recipient's holding period starts from the date of the gift, not your original acquisition.
So if you gift shares to your son in January 2026 and he sells in December 2026, he pays CGT at 24% (non-residential rate) or 18% (basic rate) rather than 14% BADR. The tax saving from using his allowances may be wiped out by the higher rate.
If the recipient holds the shares for 2+ years after the gift, they can claim BADR on their own disposal. But that requires the company to remain trading throughout. If you are selling the entire company, the recipient's holding period resets on the gift, so they will not qualify for BADR unless the sale happens more than 2 years after the gift.
This is the central tension in gift shares family member CGT planning. You want to use their allowances, but the timing of the sale determines whether BADR is available.
Let's look at a worked example.
Example: Gifting Shares to a Child Before Sale
You own 100% of a trading company worth £1.2 million. Your base cost is £1. You have held the shares for 10 years. You plan to sell the company in 12 months.
Option 1: Sell all shares yourself.
Gain: £1,199,999. BADR applies on the first £1 million (14% = £140,000). The remaining £199,999 is taxed at 24% = £47,999. Total CGT: £187,999.
Option 2: Gift 20% of the shares (£240,000 value) to your child now. They sell with you in 12 months.
On the gift: you have a gain of £239,999 (base cost 20p). You can use your £3,000 annual exempt amount. You pay CGT at 14% BADR on the first £236,999 (assuming you have not used any BADR before) = £33,179. Your child receives shares with a base cost of £240,000. They sell at £240,000. No gain. No tax.
On your remaining 80%: gain £959,999. BADR on £763,001 (remaining BADR headroom) = £106,820. Balance £196,998 at 24% = £47,279. Total CGT on your shares: £154,099.
Combined CGT: £33,179 + £154,099 = £187,278. Saving of £721. Minimal.
Option 3: Gift 20% now, claim holdover relief, child sells in 12 months.
No CGT on the gift. Child's base cost is 20p. They sell at £240,000. Gain £239,999. No BADR (held less than 2 years). They pay CGT at 24% (assuming higher rate) = £57,599. You pay CGT on your 80% as above: £154,099. Combined: £211,698. Worse than Option 1.
Option 4: Gift 20% now, child holds for 2+ years, then sells.
You pay CGT on the gift at 14% BADR: £33,179. Child holds for 2 years, then sells. They claim BADR on their gain (assuming they meet the conditions). Gain £239,999 at 14% = £33,599. Combined: £66,778. You sell your 80% at the same time: £154,099. Total: £220,877. Worse than Option 1.
The numbers shift dramatically depending on the size of the gain, the availability of BADR, and the recipient's tax position. In many cases, the simplest approach (selling all shares yourself) produces the lowest total tax bill.
Gifting shares to family members is not a magic bullet. It works best when the recipient has low income and can use their basic rate band and annual exempt amount, and when the donor has already used their BADR allowance. For most owner-managers with a full £1 million BADR allowance, selling personally is the better route.
When Does Gifting Shares Make Sense?
There are specific scenarios where gift shares family member CGT planning is genuinely beneficial:
- You have already used your BADR allowance. If you have sold a previous business and used the full £1 million, BADR is gone. Gifting shares to a family member who can claim BADR after 2 years can save 10% (the difference between 24% and 14%).
- The recipient has significant unused basic rate band. If your child earns £20,000, they have £30,270 of basic rate band available. CGT at 18% rather than 24% on gains up to that amount saves 6%.
- The company is not BADR-qualifying. If the company is an investment company or a property company, BADR does not apply anyway. Gifting shares to use allowances and basic rate bands is more attractive.
- You want to extract value gradually. If the company is not being sold immediately, gifting shares each year to use annual exempt amounts (£3,000 per donor per year) can slowly shift value tax-free.
In each case, the maths needs to be run with real numbers. A general rule of thumb is not enough.
The Settlement Trap: Gifting to a Non-Spouse
If you gift shares to a minor child (under 18) who is not your spouse, the income from those shares (dividends) is treated as yours under the settlement legislation (ITTOIA 2005, Part 5, Chapter 5). This does not apply to capital gains, but it does mean that dividends paid on the gifted shares are taxed on you, not the child.
For adult children, the settlement rules do not apply unless the gift is a "bare trust" with retained strings. A straightforward outright gift of shares to an adult child is fine. But if you retain control over how the shares are voted or the dividends are paid, HMRC may argue the gift is not genuine.
Gifting shares to a spouse is not caught by the settlement rules. But as we saw, the spouse exemption means no gain on the gift, and the spouse inherits your base cost. The gain is deferred, not eliminated.
Practical Steps If You Are Considering a Gift of Shares
If you are thinking about gifting shares to a family member before selling your company, here is what to do:
- Run the numbers. Model the CGT under each scenario: sell all yourself, gift without holdover relief, gift with holdover relief, gift to spouse, gift to child. Use actual values for your company and actual tax positions for each person.
- Check BADR eligibility. Confirm the company is a trading company and has been for 2+ years. Check that the recipient will hold for 2+ years if they want BADR.
- Document the gift. Execute a share transfer form (stock transfer form) and update the company's register of members. Pay any stamp duty (0.5% on consideration over £1,000, but gifts at nil value may still require a £5 fixed duty).
- File the holdover relief claim. If you want holdover relief, both you and the recipient must sign the joint claim. Include it with your self assessment return for the year of the gift.
- Consider the timing. If the sale is imminent (within 12 months), gifting shares is unlikely to produce a net benefit. If the sale is 3+ years away, the picture changes.
As ICAEW qualified accountants, we see many business owners assume gifting shares to family members is a straightforward tax saving. It is not. The interaction between holdover relief, BADR, and the recipient's tax position means the outcome is highly sensitive to the specific facts.
If you are considering a share gift as part of your exit planning, contact our team. We will run the calculations for your specific situation and tell you whether the strategy works or whether selling personally is the cleaner route.
For a broader overview of CGT planning on business sales, see our exit and capital gains guide. And if you are thinking about restructuring your shareholding before a sale, our services page covers the full range of corporate tax planning options.