Gifting Shares to a Family Member: CGT, Holdover Relief and the BADR Interaction

Can You Gift Shares to a Family Member Before Selling Your Company?

Yes. Gifting shares to a spouse triggers no CGT on the transfer itself. Gifts to adult children or other family members are a disposal at market value and create an immediate CGT charge unless holdover relief under TCGA 1992 s.165 applies. The practical outcome depends on who receives the shares, whether the company qualifies as a trading company, whether you make a holdover claim, and how the gift interacts with Business Asset Disposal Relief (BADR).

This article works through each route in detail, with arithmetic examples showing every step, a comparison of the tax outcomes, and an explanation of what the settlement legislation does to dividends on shares held by minor children.

Route 1: Gifting Shares to a Spouse or Civil Partner

Under TCGA 1992 s.58, a transfer between spouses or civil partners who are living together is treated as a no-gain, no-loss disposal. No CGT arises at the point of the gift. The recipient spouse inherits the donor's original base cost, and the gain is deferred until the recipient disposes of the shares.

The practical effect is income-splitting and rate-band arbitrage. If your spouse has lower income than you, their marginal CGT rate on the eventual sale will be lower: 18% in the basic-rate band against your 24% above it. Both rates apply from 30 October 2024 to all chargeable assets (§5, house positions). The annual exempt amount is £3,000 for 2025/26 and 2026/27, and each spouse has their own entitlement.

Worked example: spouse transfer before a company sale

You own 100% of a consultancy limited company. You and your spouse plan to sell it for £600,000. Your base cost is £1,000 (original subscription). You have used all other income and have no basic-rate band remaining. Your spouse has other income of £20,000, leaving approximately £30,000 of basic-rate band available for capital gains (assuming the personal allowance of £12,570 and the basic-rate band to £50,270 for 2025/26).

You gift 50% of the shares (worth £300,000) to your spouse. The gift is no-gain, no-loss under s.58. Your spouse inherits a base cost of £500 (50% of your £1,000 original cost).

On the sale, your spouse's gain is £299,500 (proceeds £300,000 minus base cost £500). After deducting their annual exempt amount (£3,000), the taxable gain is £296,500. The first £30,000 is taxed at 18% (basic rate) = £5,400. The remaining £266,500 is taxed at 24% = £63,960. Their total CGT: £69,360.

Your gain on your remaining 50%: £299,500. After AEA £3,000, taxable gain £296,500. At 24% throughout (you are higher rate): £71,160.

Combined CGT on the sale: £69,360 + £71,160 = £140,520.

Without the gift (you sell 100% alone): gain £600,000 minus base cost £1,000 equals £599,000. After AEA £3,000, taxable gain equals £596,000. CGT at 24% equals £143,040.

The band-stacking saving here is modest (approximately £2,520) because your spouse has limited basic-rate band remaining after their other income. If your spouse had no other income, the saving would be larger. Run the actual figures for each situation: the benefit turns entirely on how much basic-rate band your spouse has available in the year of sale.

The Ramsay risk on spouse transfers

HMRC applies the Ramsay principle where a transaction is pre-ordained and the steps have no independent commercial purpose. A gift to a spouse followed immediately by a sale that was already agreed in principle is vulnerable. In practice, courts and HMRC distinguish between a genuine gift (where the spouse has full voting, dividend, and capital rights and is recognised as a shareholder by Companies House before any buyer approaches) and a paper transfer designed purely to shift a pre-agreed gain. A genuine transfer made months before any sale process begins is not the same as a transfer executed the day before exchange.

Route 2: Gifting Shares to an Adult Child or Other Family Member

A gift to anyone other than a spouse is a disposal at market value for CGT purposes. There is no spouse exemption. HMRC treats you as if you sold the shares at their current open-market value on the date of the gift, and CGT is computed on the resulting gain.

The CGT rates from 30 October 2024 onward are 18% (gains in the basic-rate band) and 24% (gains above it), with the £3,000 annual exempt amount (§5, house positions, confirmed at gov.uk CGT rates).

Worked example: gift to adult child, no holdover claim

You own a manufacturing limited company. You gift 25% of the shares (valued at £150,000) to your adult daughter. Your original base cost for that 25% slice is £2,500 (25% of your £10,000 subscription). The gain on the gift: £150,000 minus £2,500 = £147,500. After AEA £3,000, the taxable gain is £144,500. As a higher-rate taxpayer, your CGT: 24% of £144,500 = £34,680, due by 31 January following the tax year of the gift.

Your daughter acquires shares with a base cost equal to the market value used for the gift: £150,000. When the company sells later for £600,000, her 25% produces proceeds of £150,000. Her gain: nil (proceeds equal base cost). She pays no CGT on the sale.

The tax cost has moved from the sale date to the gift date. Whether that is better depends on whether CGT rates or your situation will change between now and the sale. You need cash to pay the £34,680 before the company proceeds arrive. See our guide to CGT rates for 2025/26 for the full rate table.

Route 3: Holdover Relief Under TCGA 1992 s.165

Where you gift shares in a qualifying trading company, holdover relief defers the CGT that would otherwise arise. Both you and the recipient make a joint claim. The gift is treated as a no-gain, no-loss disposal: you pay no CGT at the point of the gift, and the recipient's base cost is reduced by the amount of the held-over gain rather than being set at market value.

Qualifying conditions (§5 house positions; s.165 confirmed in force)

• 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. Holdover relief is unavailable for gifts to non-residents.
• The recipient must not be a company (s.165(3)(ba)).
• Both parties must make a joint written claim, submitted with (or by amendment to) their Self Assessment returns.

Worked example: gift to adult child with holdover relief

You gift 25% of the shares (valued at £150,000) to your adult son. Your base cost for that slice: £2,500. Gain on the gift: £147,500. Holdover relief is claimed jointly. Result: you pay no CGT at the gift. Your son's base cost is not £150,000 (market value) but instead £150,000 minus the held-over gain of £147,500 = £2,500 (your original cost).

When the company later sells for £600,000, your son's proceeds on his 25%: £150,000. His gain: £150,000 minus £2,500 = £147,500. He pays CGT on that gain at his rates, using his own annual exempt amount and BADR if available.

The tax is not eliminated: it is moved to your son. Whether that benefits the family overall depends on his tax position at the time of the future sale and whether he can access BADR.

How Holdover Relief Interacts with BADR

BADR gives a reduced CGT rate on qualifying business disposals up to a £1,000,000 lifetime limit per individual (confirmed at s.169N, TCGA 1992). The rate is 14% for disposals from 6 April 2025 to 5 April 2026, rising to 18% from 6 April 2026 per the BADR schedule (§5, house positions). See our detailed guide on the BADR 2026 rate change for the planning implications of that step.

The BADR conditions for a share disposal require that, throughout the two-year period ending on the date of disposal, the individual holds at least 5% of the ordinary shares and voting rights (and a 5% economic entitlement), is an officer or employee of the company, and the company is a trading company (ss.169H to 169S, TCGA 1992).

Scenario A: holdover relief claimed, child sells later

If holdover relief is claimed, no CGT crystallises on the donor. The donor does not use any BADR allowance at the gift. The recipient inherits the donor's base cost. To use BADR on the eventual sale, the recipient must satisfy the qualifying conditions in their own right: they must be an officer or employee of the company and hold 5%+ of the ordinary shares and voting rights throughout the two years before their disposal. The holding period does not carry across from the donor.

This is a practical constraint for gifts to children who are not involved in the business. If your daughter does not join the company as a director or employee, she cannot use BADR on the deferred gain when the company sells. She pays CGT at 18% or 24% on the full held-over gain.

Scenario B: no holdover claim, BADR used at the gift

If no holdover claim is made, CGT crystallises on the donor at the point of the gift. If the donor meets the BADR conditions (officer or employee for two years, 5%+ shareholding for two years, trading company), they can use BADR on the gain at the gift: 14% in 2025/26 or 18% from 6 April 2026. The recipient acquires shares at market-value base cost and has their own BADR allowance for any future sale.

Comparison table: gift routes and tax outcomes

Route	CGT on donor at gift	Recipient base cost	CGT on recipient at sale	BADR available to recipient
Spouse transfer (TCGA 1992 s.58)	None	Donor's original cost	At spouse's rates (18%/24%); BADR if qualifying	Yes, if spouse meets conditions independently
Gift to child, no holdover	CGT at 18%/24% (or 14%/18% with BADR)	Market value at gift	Gain from market value: likely nil or small if sale follows promptly	Yes, on any post-gift gain; own £1m limit
Gift to child, holdover relief (s.165)	None	Donor's original cost (reduced by held-over gain)	Full gain since original cost: 18%/24% (or 18% with BADR if qualifying)	Only if child is officer/employee for 2 years before disposal

The Settlement Legislation: A Trap for Minor Children

If the recipient is under 18 and unmarried, the settlement legislation in ITTOIA 2005 s.629 treats any dividends arising on the gifted shares as the parent's income for tax purposes. The child nominally owns the shares, but the dividends are taxed on the parent at the parent's marginal rate.

This does not affect the CGT position: capital gains on a future sale are not caught by s.629, only income. But it eliminates the income-splitting benefit of holding dividend-paying shares in a child's name. A parent hoping to use the child's dividend allowance and lower tax rates on dividends from the company will find s.629 applies those dividends back to the parent's return.

For adult children, s.629 does not apply (the child is not a "relevant child" once they turn 18). However, other anti-avoidance provisions can apply if the donor retains a benefit or the gift is conditional.

Practical Steps: Executing a Share Gift

• Check the articles of association. Most private company articles permit share transfers between family members, but some require director or board approval. Restricted transfer articles need to be reviewed before proceeding.
• Execute a stock transfer form. This is the legal document that transfers registered ownership. For a genuine gift (no cash consideration), Stamp Duty Reserve Tax does not arise, but market value governs the CGT calculation between connected persons.
• Update the register of members and file a confirmation statement. Companies House must record the new shareholder. The transfer is not legally effective until the register is updated.
• Make the holdover relief claim jointly. Both parties must sign. The claim is submitted with or by amendment to the Self Assessment returns for the tax year of the gift. For a gift in 2025/26, the deadline to amend the return is 31 January 2028.
• Obtain a share valuation. HMRC can challenge the market value used. An independent valuation (or at minimum a documented methodology) is advisable, particularly for minority shareholdings where a discount for lack of control may apply.

Reporting and Payment Deadlines

A gift of shares to a non-spouse that triggers a CGT charge must be reported on your Self Assessment return. The payment deadline is 31 January following the end of the tax year in which the gift occurs. Company shares are not UK residential property, so the 60-day CGT reporting rule (which applies only to residential property disposals) does not apply here. See our guide on HMRC CGT reporting requirements for a full breakdown of what needs to be reported and when.

If holdover relief is claimed, there is no immediate CGT charge on the donor and no immediate reporting obligation for the gain. The held-over amount is recorded in the claim and reduces the recipient's base cost going forward.

Risks and Points That Frequently Go Wrong

The most common planning failures we see in this area:

• Claiming holdover relief on an investment company's shares. If the company holds property as investments rather than running a trade, s.165 holdover relief is not available. The gift triggers an immediate CGT charge. Always check the company's activities against the trading company definition before assuming holdover applies.
• Gifting close to a pre-agreed sale and expecting BADR for the recipient. If a sale is already negotiated when the gift is made, the recipient may not have held the shares for the two-year period that BADR requires. The BADR clock starts when the recipient is registered as a shareholder and first meets the officer or employee condition, not when the donor originally acquired the shares.
• Ignoring s.629 for minor children. A director who gifts shares to a child under 18 expecting to use the child's dividend allowance will find those dividends attributed back to the director's own return under s.629. The company's dividend policy becomes irrelevant from a splitting perspective for that recipient until the child turns 18.
• Failing to agree a defensible valuation. A gift at an understated value reduces the donor's CGT but can trigger scrutiny under the transactions in securities legislation if it looks like a value-shifting arrangement. An independently supported valuation is the cleaner position.

If the company is later sold via a Members' Voluntary Liquidation rather than a direct share sale, different considerations apply to the distribution treatment. Our guide on Members' Voluntary Liquidation covers how capital distributions are taxed in a solvent winding up and when the TAAR applies.

Should You Gift Shares Before a Sale?

For a spouse, the answer is usually yes if they pay CGT at a lower effective rate. The s.58 exemption is clean, the mechanics are straightforward, and the income-splitting benefit is real where there is a band difference. The main check is whether the gift is genuine and documented before any sale process begins.

For adult children, the decision is more nuanced. Holdover relief defers the tax but does not reduce it unless the child is a lower-rate taxpayer than you or can access BADR that you cannot. If neither condition applies, holdover relief may simply move an 18% tax bill (your BADR rate) to a 24% one (child's non-BADR rate). That is not a benefit. The decision requires a modelled comparison of the actual numbers, not a default assumption that deferral is better.

The question to ask after reading this page: if the company were sold via a trade-and-assets structure rather than a share sale, would gifting shares still make sense? Our guide on BADR and company cash reserves explores another common structuring question that arises in the same planning window.

This article provides general guidance only and reflects the law as at June 2026. Tax treatment depends on individual circumstances. Always seek professional advice before implementing any share transfer or CGT planning strategy.