Capital Gains Tax is not just about how much tax is paid. In many cases, it is about when it is paid. Getting the timing wrong can turn what looks like sensible planning into a long term problem that follows an asset for years.

This is exactly where gift holdover relief comes into play. It is often approached as a way to avoid an immediate tax bill, but that is only part of the story. The real risk sits in the timing of the gain, who eventually bears it, and whether the decision still makes sense when circumstances change.

This article looks at holdover relief from a timing perspective. Not from theory, but from how it plays out in real UK tax situations involving families, businesses, and trusts.

Why Timing Matters More Than the Tax Rate

Most people focus on rates. Basic rate or higher rate. Residential property or other assets. What is often overlooked is that a deferred gain does not disappear. It simply waits.

A gain held over today may crystallise ten or fifteen years later under a completely different tax environment. Rates may be higher. Reliefs may be reduced. The recipient’s income position may push the gain into a higher band.

This is why hold over relief is not automatically a good outcome. It is a timing decision, not a tax saving in isolation.

How Gifts Are Taxed Without Holdover Relief

Under UK tax law, a gift is treated as a disposal at market value. Even where no money is received, the donor is taxed as if the asset were sold on the open market.

This creates immediate exposure in situations that feel non commercial. Gifting property to children. Transferring shares to a family member. Settling assets into trust.

Without gift relief, Capital Gains Tax is payable at the point of transfer. That is often what pushes taxpayers towards holdover relief in the first place.

What Gift Holdover Relief Actually Changes

When gift holdover relief applies, the gain that would normally arise is deferred. The donor does not pay Capital Gains Tax at the time of the gift. Instead, the recipient acquires the asset with a reduced base cost.

The tax has not gone away. It has moved forward in time.

This is the critical point many people miss. The relief shifts the tax burden onto the future disposal by the recipient. Whether that future disposal is tax efficient depends on factors that may not exist yet.

Section 165 TCGA 1992 and Business Assets

Why Section 165 Exists

Section 165 TCGA 1992 allows holdover relief on gifts of qualifying business assets. The intention is to support business continuity where ownership changes but value is not being realised.

This relief is commonly used when business owners pass shares or trading assets to the next generation or restructure ownership within a family.

Where Timing Risks Appear

A business asset gifted today may be sold by the recipient years later. The deferred gain may crystallise at a point where business asset disposal relief is no longer available or where conditions are no longer met.

What felt sensible at the time of the gift can become inefficient later, simply because the timing changed.

S260 Holdover Relief and Trust Transfers

The Link Between CGT and IHT

S260 holdover relief applies mainly where assets are transferred into trust and an inheritance tax charge arises. The relief exists to prevent double taxation at the same point in time.

Again, the relief defers the gain rather than eliminating it.

Why Trust Timing Is Often Misjudged

Trusts are often long term structures. Assets may sit within them for decades. When a trust eventually disposes of an asset, the deferred gain surfaces, sometimes in a tax environment that is far less favourable than when the trust was created.

Timing errors in trust planning tend to surface slowly, which makes them harder to correct.

The Holdover Relief Claim Form and Timing Discipline

A valid holdover relief claim form is essential. Both donor and recipient must jointly elect for the relief, and the claim must be made correctly and on time.

Timing issues arise where claims are rushed, backdated, or made without proper valuation evidence. HMRC increasingly challenges claims where the commercial rationale is unclear or poorly documented.

Errors at this stage do not just delay relief. They can invalidate it entirely.

Deferred Does Not Mean Predictable

One of the biggest misconceptions around gift holdover relief is the assumption that future tax outcomes can be predicted with confidence.

They cannot.

Future legislation changes. Personal circumstances shift. Assets are sold sooner or later than planned. The person receiving the asset may move into a higher income bracket or lose access to reliefs that were assumed to be available.

This uncertainty is the real cost of getting timing wrong.

A Simple Timing Comparison

This comparison highlights why deferral decisions need to be deliberate rather than automatic.

When Paying Capital Gains Tax Upfront Makes Sense

There are situations where paying Capital Gains Tax at the time of the gift is the more controlled outcome. This includes cases where the donor has capital losses available, expects lower tax rates now, or wants certainty.

Deferral is not always beneficial. Sometimes certainty is more valuable than postponement.

This is where gift relief decisions should be weighed against broader planning goals rather than viewed in isolation.

HMRC’s Evolving View on Holdover Relief

HMRC no longer treats holdover relief as routine. Increased reporting requirements, valuation scrutiny, and data matching mean claims are reviewed more critically than before.

Timing errors are easier to spot. Inconsistent valuations across CGT and IHT filings are flagged more quickly. Claims that lack clear commercial reasoning are challenged.

This trend is unlikely to reverse.

The Human Side of Timing Errors

Timing mistakes are rarely deliberate. They usually arise from assumptions. That tax rates will stay the same. That assets will not be sold for many years. That records will always be available.

Years later, when a disposal occurs, those assumptions no longer hold. The deferred gain becomes a real liability, often at a point where options are limited.

This is why timing deserves as much attention as eligibility.

Final Perspective

Gift holdover relief can be an effective planning tool when timing is understood and controlled. It can also create long term exposure when timing is treated as secondary to short term tax avoidance.

The real cost of getting Capital Gains Tax timing wrong is not always visible at the point of the gift. It appears later, when circumstances have changed and flexibility has narrowed.

This is why careful structuring, clear documentation, and forward looking analysis matter. In practice, this is where experienced advisers such as Taxaccolega are engaged, not to chase reliefs, but to ensure that deferral decisions still make sense when the future arrives.