Can You Gift Shares to a Family Member Before Selling Your Company?
Yes, you can. And many business owners consider it. The logic is straightforward: if you gift shares to your spouse or adult children before a sale, the capital gain is spread across multiple people, each with their own annual exempt amount (£3,000 for 2025/26) and their own tax bands. In theory, the total CGT bill falls.
But the tax treatment depends on who you gift the shares to, when you do it, and whether you claim holdover relief. Get it wrong and you trigger a tax charge earlier than expected. Get it right and you could save thousands.
This article covers the rules for gifting shares to family members before a company sale, with worked examples for spouses and children, and explains how gift shares family member CGT works in practice.
Gifting Shares to a Spouse: The Spouse Exemption
UK tax law treats spouses and civil partners as a single economic unit for CGT purposes. That means a gift of shares between spouses is a no gain, no loss transfer. No CGT is payable at the point of the gift.
The recipient spouse inherits the donor's original base cost. So if you bought shares for £10,000 and gift them to your spouse, their base cost for future CGT purposes is also £10,000. When they later sell the shares, the gain is calculated from that original cost.
This matters because the gain is taxed on the recipient spouse, using their available annual exempt amount and their income tax band. If your spouse has little or no other income, they may pay CGT at 18% (basic rate for non-residential assets) rather than your 24% (higher rate).
Example:
You own 100% of your consultancy Ltd, which you plan to sell for £500,000. Your base cost is £1 (the nominal subscription value). The gain is £499,999.
If you sell alone, your CGT bill at 24% (assuming you are a higher rate taxpayer) is approximately £119,278 after the £3,000 annual exempt amount.
If you gift 50% of the shares to your spouse six months before the sale, and your spouse has no other income, their CGT rate is 18% on the first £50,270 of gains (basic rate band) and 24% on the remainder. Their tax bill would be lower. Combined, the saving can be significant.
But there is a catch. If you gift shares to a spouse and then sell within the same tax year, HMRC may challenge the arrangement under the settlement legislation if the gift is considered an outright transfer of assets without a genuine change in beneficial ownership. For spouses, this is rarely an issue as long as the shares are legally transferred and the spouse has full voting and dividend rights.
Gifting Shares to Children or Other Family Members
Gifting shares to adult children, siblings, or other relatives is treated differently. There is no spouse exemption. The gift is a disposal at market value for CGT purposes.
That means you are treated as if you sold the shares for their current market value, even though no cash changes hands. You must report the gain on your self assessment return and pay CGT on it, using your own annual exempt amount and tax rates.
If you gift shares to a child before a sale, you trigger a CGT charge at the point of the gift, not when the company is sold. That can create a cash flow problem: you owe tax on a gain you haven't yet realised in cash.
Example:
You own a Birmingham-based ecommerce business worth £600,000. Your base cost is £10,000. You gift 20% of the shares (worth £120,000) to your adult daughter in March 2026. The gain on the gift is £110,000 (£120,000 minus £10,000 x 20% = £2,000 base cost). You owe CGT on £107,000 after the £3,000 annual exempt amount. At 24%, that is £25,680 due by 31 January 2027. Your daughter then owns shares with a base cost of £120,000. When the company sells six months later for £600,000, her gain is nil (sale proceeds match her base cost).
This can still work as a strategy, but the timing matters. You need the cash to pay the tax before the company sale completes.
Holdover Relief: Deferring the CGT on Gifts
If you gift shares to a family member (other than a spouse) and the shares qualify as business assets, you can claim holdover relief under TCGA 1992, s.165. This defers the CGT gain until the recipient disposes of the shares.
For holdover relief to apply, the shares must be in a trading company or a holding company of a trading group. Investment companies and property investment companies do not qualify. The recipient must be UK resident at the time of the gift.
You and the recipient must make a joint claim. The effect is that your gain is held over, and the recipient's base cost is reduced by the amount of the held-over gain.
Example:
You gift shares worth £200,000 to your son. Your base cost is £10,000. The gain is £190,000. With holdover relief, you pay no CGT now. Your son's base cost becomes £10,000 (the original cost, not the market value). When your son sells the shares in a future sale, his gain is £190,000, and he pays the CGT at his rates.
Holdover relief is useful if the recipient is likely to be a basic rate taxpayer at the time of the future sale, or if you want to defer the tax bill until cash is actually received. But it does not eliminate the tax. It just moves it to the recipient.
Holdover Relief and Business Asset Disposal Relief (BADR)
This is where the interaction gets complex. BADR (formerly Entrepreneurs' Relief) gives a reduced CGT rate of 14% for disposals in 2025/26, rising to 18% from 6 April 2026. The lifetime limit is £1 million of gains.
If you gift shares to a family member and claim holdover relief, the recipient inherits your holding period for BADR purposes. That means if you have held the shares for two years, the recipient is treated as having held them for two years too. This is critical because BADR requires a two-year holding period for the shares (and the company must be a trading company throughout that period).
But there is a trap. If you gift shares to a child and claim holdover relief, and your child later sells the shares, they can use their own BADR lifetime limit of £1 million. That is separate from your limit. So you could each access BADR on the same underlying gain, provided the total gains for each of you stay under £1 million.
Example:
You own a £1.5 million company. You gift 50% to your daughter and claim holdover relief. Your gain on the gift is deferred. Two years later, the company sells. Your daughter's gain is £750,000. She can use BADR at 14% (2025/26) on that gain. Your gain on your remaining 50% is also £750,000. You can use BADR on your gain too. Total CGT: £210,000 instead of £360,000 at 24%. A saving of £150,000.
But if you gift the shares and do not claim holdover relief, you trigger a CGT charge immediately. That gain uses your BADR allowance at that point. The recipient then has a market value base cost and their own BADR allowance for the future sale. This can be beneficial if you have BADR allowance to spare and the recipient does not.
The Settlement Legislation Trap for Children
If you gift shares to minor children (under 18), the settlement legislation in ITTOIA 2005, s.629 applies. Any income arising from those shares (dividends) is treated as your income, not the child's. This does not apply to capital gains, but it does affect the dividend tax planning.
For adult children, the settlement legislation can still apply if the gift is considered a settlement where the donor retains an interest. This is rare for outright gifts of shares with full voting rights, but it can arise if you retain control or the gift is conditional.
If HMRC challenges the arrangement, they may treat the dividends as yours, defeating the purpose of the gift. Our ICAEW qualified team at Holloway Davies regularly advises on structuring share gifts to avoid settlement issues. You can contact us to discuss your specific situation.
Practical Steps: How to Gift Shares Before a Sale
If you are considering gifting shares to family members before selling your company, follow these steps:
- Check the company's articles of association. Some articles restrict share transfers or require director approval. You may need to amend them.
- Execute a stock transfer form. This is the legal document that transfers ownership. It must be stamped by HMRC if the consideration exceeds £1,000 (even for gifts, market value is used).
- Update the company's register of members. The recipient must be recorded as a shareholder.
- File a confirmation statement. Companies House must be notified of the change in shareholding.
- Make a joint holdover relief claim. If you want to defer the gain, both you and the recipient must sign the claim and include it with your self assessment returns.
- Consider the timing. Gifting shares shortly before a sale may be challenged by HMRC under the Ramsay principle (the principle that tax avoidance schemes can be recharacterised). A gift made at least two years before the sale is safer for BADR purposes and reduces the risk of challenge.
What About CGT for Non-Resident Family Members?
If the recipient is non-UK resident at the time of the gift, different rules apply. Non-residents are generally subject to UK CGT on disposals of UK residential property and on assets used for a UK trade. But shares in a UK trading company are not typically within the scope of UK CGT for non-residents unless the company is property-rich.
If you gift shares to a non-resident child, holdover relief is not available. The gain crystallises on you at the point of the gift. The recipient may then sell the shares free of UK CGT if they remain non-resident. This can be a legitimate planning strategy, but it requires careful advice.
Reporting and Payment Deadlines
If you gift shares and trigger a CGT charge, you must report the gain on your self assessment return for the tax year of the gift. The payment deadline is 31 January following the end of the tax year.
If the gift is to a spouse, there is no immediate reporting requirement, but the subsequent sale by the spouse must be reported.
If you claim holdover relief, the claim must be made on or before the first anniversary of 31 January following the tax year of the gift. So for a gift in 2025/26, the claim deadline is 31 January 2028.
Common Mistakes and Risks
Three mistakes we see regularly:
- Gifting shares without checking BADR eligibility. If the recipient does not meet the two-year holding requirement (because you gift too close to the sale), they lose BADR. You also lose it on the gifted shares if you claimed holdover relief.
- Ignoring the settlement legislation for minor children. Dividends paid to children under 18 are taxed on the parent. This can undo the income splitting benefits.
- Failing to get professional advice on the valuation. HMRC may challenge the market value used for the gift. An over-valuation increases the donor's gain. An under-valuation can trigger a charge under the transactions in securities legislation.
For a full breakdown of the rules around share transfers and company sales, read our guide on exit and capital gains planning.
Should You Gift Shares Before a Sale?
Gifting shares to a spouse is almost always beneficial from a tax perspective, provided the spouse is a lower-rate taxpayer. The spouse exemption makes it clean and simple.
Gifting shares to children is more complex. It can save significant CGT if done correctly, especially if holdover relief and BADR are both available. But it requires careful timing, proper documentation, and an understanding of the settlement rules.
The key question is whether the tax saving outweighs the loss of control. Once shares are gifted, you cannot take them back. The recipient has full voting rights and can block a sale if they choose. For family businesses, this is usually manageable. For more complex situations, trust structures may be a better option.
If you are considering a share gift before a company sale, speak to an accountant who specialises in business exit planning. The rules are nuanced, and getting them wrong can cost more than the tax you tried to save.
This article provides general guidance only. Tax treatment depends on individual circumstances. Always seek professional advice before implementing any share transfer or CGT planning strategy.