Advanced Taxation (UK) · Capital gains tax: gains and losses on the disposal of movable and immovable property

Gift Holdover, Rollover and Incorporation Relief for CGT

Updated 11 October 2026 · Fact-checked

These three reliefs defer a capital gain instead of removing it. Gift relief passes the gain to the person receiving a business asset. Rollover relief moves the gain into a replacement business asset. Incorporation relief moves the gain into the shares you receive from a company. In each case the deferred gain reduces a new base cost.

Understand Gift Holdover Relief, Rollover Relief and Incorporation Relief

A deferral relief does not cancel a gain. It postpones the tax by reducing the base cost of another asset. The gain comes back into charge when that other asset is sold. So every question has the same shape: find the gain, decide how much is deferred, and then work out the new base cost.

Gift relief (section 165 TCGA 1992) applies when you give away a business asset, or sell it for less than market value. Qualifying assets are assets used in a trade, and shares in an unquoted trading company or in the donor's personal company. Agricultural property also qualifies. You and the person receiving the asset make a joint election. If the asset goes into a trust, the donor alone elects. Market value is used as the deemed proceeds. The deferred gain is deducted from the donee's base cost.

Rollover relief applies when you sell a qualifying business asset and reinvest the proceeds in another qualifying asset. The main classes are land and buildings used in the trade, and fixed plant and machinery. The new asset must be bought in the window from 12 months before to 36 months after the disposal, and it must be used in your trade. If you do not reinvest all the proceeds, you are taxed now on the amount not reinvested, up to the size of the gain. The rest is deducted from the new asset's base cost.

Incorporation relief applies when you transfer a business as a going concern, with all its assets (other than cash), to a company in exchange wholly or partly for shares. It applies automatically. The gain is deducted from the base cost of the shares. If you also receive cash or a loan account, only the proportion of the gain matching the shares is deferred. You can elect for it not to apply, usually to use business asset disposal relief on the whole gain.

The exam tests which relief fits the facts, whether it is automatic or needs an election, and what tax is payable now and later. Always state the new base cost.

Key rules to remember

Gift relief: gift of a qualifying asset: Gain held over = market value − cost (with any other reliefs and adjustments); donee base cost = market value − gain held over; The donor has no gain after a joint election. The donee's base cost is therefore the donor's original cost.
Gift relief: sale at undervalue: Gain taxed now = actual proceeds − cost (if positive); gain held over = (market value − cost) − gain taxed now; The donee's base cost = market value − gain held over. It equals the price paid in the simple case where proceeds exceed cost.
Rollover relief: partial reinvestment: Gain taxed now = lower of (gain) and (proceeds − amount reinvested); gain deferred = gain − gain taxed now; New asset base cost = cost of new asset − gain deferred. Reinvestment window: 12 months before to 36 months after disposal.
Rollover relief: depreciating assets: Deferred gain crystallises on the earliest of: sale of the replacement asset, it ceasing to be used in the trade, or 10 years after acquisition; Depreciating assets include fixed plant and machinery and assets with a life of 60 years or less. The base cost of the new asset is not reduced.
Incorporation relief: shares and other consideration: Gain deferred = total gain × (value of shares ÷ total consideration); base cost of shares = value of shares − gain deferred; The balance of the gain is chargeable now. Business asset disposal relief may apply to it if the conditions are met.
CGT rates and allowances (tax tables): 18% and 24%; annual exempt amount £3,000; business asset disposal relief rate 14% (lifetime limit £1,000,000); Take these from the tax tables in the exam. Do not rely on memory.

How to solve Gift Holdover Relief, Rollover Relief and Incorporation Relief questions

Use this order for any deferral relief question. It keeps the marks for each part clear.

1Identify the transaction: a gift or sale at undervalue, a sale with reinvestment, or a transfer of a business to a company.
2Check the conditions: qualifying asset, who the parties are, the time window for reinvestment, and whether all assets and the going concern are transferred.
3Compute the gain using market value for gifts and connected-party transfers. Compute it using actual proceeds for a sale with reinvestment.
4Work out the amount deferred and the amount taxed now, using the correct restriction for cash, unspent proceeds or non-shares consideration.
5State whether the relief is automatic or needs an election, and who must make it and by when.
6Compute the base cost of the new asset or shares after deducting the deferred gain.
7Compute tax now: deduct the annual exempt amount, then apply the correct rate (18%, 24% or the business asset disposal relief rate).
8Add a short comment on the future position, for example the deferred gain returning when the new asset is sold, and mention any alternative relief.

Quickest way: One-line test for each relief

When to use it: Use this when you are short of time and need to choose the relief and set out the numbers fast.

Gift or undervalue sale of a business asset: elect for gift relief and set the donee's base cost to market value less the held-over gain.
Sale and replacement: take the proceeds not reinvested, capped at the gain. This is taxed now and the rest is deferred.
Business to company for shares: assume incorporation relief applies automatically. Scale the gain by shares ÷ total consideration if cash or a loan account is also taken.
Write the new base cost for every relief, since it is the key line for the marker.
Finish with the tax now: gain less the annual exempt amount, times the rate.

Common mistakes in Gift Holdover Relief, Rollover Relief and Incorporation Relief

Using sale proceeds rather than market value when computing the gain on a gift or sale at undervalue.
Students treat the transfer like an ordinary sale.
Fix: Use market value as deemed proceeds, then split the gain into the part taxed now and the part held over.
Deferring the whole gain on rollover relief when only part of the proceeds is reinvested.
Students forget that unspent proceeds trigger tax now.
Fix: Compare the gain with the proceeds not reinvested. Tax now is the lower of the two.
Forgetting that incorporation relief is automatic and that cash or a loan account restricts it.
Students link it with gift relief, which needs an election.
Fix: Apply the share proportion to the gain, and mention the option to elect out if business asset disposal relief is better.
Not deducting the deferred gain from the new base cost.
Students stop once the gain is computed.
Fix: Always show the new base cost workings. Without them, the later gain on the new asset cannot be computed.
Ignoring the time window and the trade use requirement for rollover relief.
Students focus on the arithmetic.
Fix: Check the dates against the 12 months before and 36 months after. Also check the new asset is a qualifying class and used in the trade.

Worked examples

Example 1

Rosa, an additional-rate taxpayer, sells a freehold factory used in her trade for £500,000. It cost £200,000. Eight months later she buys another qualifying factory for £420,000, to be used in her trade. Assume business asset disposal relief does not apply and no other gains arise. Compute the tax now and the base cost of the new factory.

Show the solution

Gain on sale = £500,000 − £200,000 = £300,000.
Proceeds not reinvested = £500,000 − £420,000 = £80,000.
Gain taxed now = lower of £300,000 and £80,000 = £80,000.
Gain deferred = £300,000 − £80,000 = £220,000.
Base cost of new factory = £420,000 − £220,000 = £200,000.
Taxable gain = £80,000 − £3,000 annual exempt amount = £77,000.
CGT at 24% = £77,000 × 24% = £18,480.

Answer: CGT now is £18,480. The deferred gain is £220,000 and the new factory has a base cost of £200,000.

Example 2

Ben, a higher-rate taxpayer, has run a business as a sole trader for several years. He transfers it as a going concern, with all its assets other than cash, to a new company. He receives shares worth £540,000 and a loan account of £60,000. The total gain on the assets is £240,000. Assume business asset disposal relief is available and no other gains arise. Compute the gain deferred, the base cost of the shares and the tax now.

Show the solution

Total consideration = £540,000 + £60,000 = £600,000.
Gain deferred = £240,000 × £540,000 ÷ £600,000 = £216,000.
Gain chargeable now = £240,000 − £216,000 = £24,000.
Base cost of shares = £540,000 − £216,000 = £324,000.
Deduct the annual exempt amount: £24,000 − £3,000 = £21,000.
CGT at the business asset disposal relief rate of 14% = £21,000 × 14% = £2,940.

Answer: Gain deferred is £216,000, base cost of the shares is £324,000 and CGT now is £2,940.

Exam tips

Name the relief, give the conditions in a line, and then compute. Conditions earn marks even when the numbers are right.
Always show the new base cost. It is the cleanest way to demonstrate deferral.
In planning questions, compare incorporation relief with electing it out for business asset disposal relief. Show the tax now and the tax later under each option.
For rollover relief, write out the dates of disposal and acquisition and test them against the reinvestment window.
Take the rates and annual exempt amount from the tax tables provided. Round workings to the nearest £ as instructed.

Practice questions from Capital gains tax: gains and losses on the disposal of movable and immovable property

Gift Holdover Relief, Rollover Relief and Incorporation Relief in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

ACCA Applied SkillsGift Holdover Relief

Gift Holdover Relief, Rollover Relief and Incorporation Relief: frequently asked questions

Who must make the gift relief election?

The donor and the donee make a joint election. If the asset is transferred to trustees, the donor alone elects. Without an election, the gain is taxed in the donor's hands on the market value.

Is incorporation relief optional?

It applies automatically when its conditions are met. You can elect for it not to apply, usually so that business asset disposal relief applies to the whole gain. The right choice depends on a comparison of the tax now and the tax on a later share sale.

What is the reinvestment period for rollover relief?

The new asset must be bought in the period from 12 months before to 36 months after the disposal. It must be a qualifying class of asset and used in the trade.

Can I claim gift relief on any asset?

No. It covers business assets used in a trade, unquoted trading company shares or shares in the donor's personal company, and agricultural property. It does not cover ordinary investment assets.