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As discussed in the Basic calculation principles of capital gains tax guidance note, a gift of a chargeable asset is a disposal for capital gains tax (CGT) purposes. To calculate the transferor’s capital gain, the deemed sales proceeds are equal to the market value of the asset at the date of the gift. This rule applies whether or not the transferor and the transferee are ‘connected persons’, as defined in the Basic calculation principles of capital gains tax guidance note.

The transferee’s base cost is the deemed proceeds (ie market value) at the date of the gift.

This means the transferor may have CGT to pay even though they received no money from the transferee. Also, the transferee has an elevated base cost which they have not actually paid.

To mitigate this cash flow problem, business asset gift relief (also known as gift relief or hold-over relief) can be claimed on the gift of qualifying business assets. Gift relief operates to defer the gain by