A client forwarded me a Treasury announcement last month with two words attached: "Relevant?" The document was titled something close to "modernising the section 165 restriction to include IFA and SSE assets", which is the kind of sentence built to make you stop reading. It is relevant. Buried under that wording is a fix to a trap that could have turned a no-cash gift of your company to your children into a capital gains tax bill in the hundreds of thousands.
Here is what I think. This is one of the rare tax changes that quietly makes the system fairer, and almost nobody it helps will ever hear about it. So my job this weekend is to translate it, because if you own a genuine trading business and you are thinking about handing shares to the next generation, the date on this change could matter more to you than any clever planning I could offer.
TL;DR: Gift holdover relief lets you give away shares in your trading company and defer the capital gains tax, so a gift raises no cash and no immediate bill. A quirk in the restriction formula meant companies built mostly on post-2002 goodwill could lose almost all of it. Finance Bill 2026-27 fixes this for gifts made on or after 6 April 2027.
What Actually Changed on Legislation Day?
On 13 July 2026, Legislation Day, the government published draft legislation for Finance Bill 2026-27 that corrects a long-standing defect in how gift holdover relief is restricted for gifts of shares in a trading company (GOV.UK). It has effect for disposals made on or after 6 April 2027.
This is a taxpayer-favourable correction, not a new relief and not a rate change. It restores the way the restriction was always meant to work, before two other tax regimes accidentally broke it. The measure adds assets inside the intangible fixed assets regime, most importantly post-2002 goodwill, and assets qualifying for the substantial shareholding exemption, into the formula that decides how much relief you keep (GOV.UK). Dry on the page, large in practice.
What Is Gift Holdover Relief, and Why Would You Use It?
It lets someone giving away business assets, including shares in their trading company, defer the capital gain instead of being taxed on a gift that put no money in their pocket. The relief passes your base cost to the person receiving the shares under section 165 of the Taxation of Chargeable Gains Act 1992, so the tax is not wiped out, it is carried forward to them.
That is how family businesses move down a generation without a bill landing on the handover. It matters because the alternative is real money. Capital gains on shares are charged at 18% or 24% for 2026/27 (GOV.UK), and even Business Asset Disposal Relief now sits at 18% on the first £1m of qualifying gains after two rises from 10% (GOV.UK). Gift the shares, hold over the gain, and you defer all of it. Get the relief wrong, and a gift you thought was free becomes a six-figure event.
Why Could a Thriving Trading Company Lose the Relief?
Because holdover is restricted where the company holds assets that are not used in its trade, and the restriction works through a fraction: the value of your chargeable business assets over the value of all your chargeable assets. Holdover only shelters that proportion of the gain. A company stuffed with investments and spare cash gets less relief, which is fair enough.
The defect was in the maths. Because of how the intangible fixed assets regime and the substantial shareholding exemption were built, post-April-2002 goodwill was not treated as a "chargeable asset" for this particular formula. So the biggest asset in a modern service business, the goodwill it has built since 2002, simply dropped out of the top of the fraction, while a trivial pot of cash or a small investment sat in the bottom and dragged the relief towards zero. Two identical firms, one incorporated in 2001 and one in 2003, could be treated completely differently on the same gift.
What Did the Worked Example Look Like?
Stark enough that it stops you in your tracks. In the example doing the rounds among advisers, a company sits on £2m of post-2002 goodwill, £2,000 of share investments and £500,000 of cash, and the owner gifts shares to his son, crystallising a £2.5m gain (Forbes Dawson).
Under the old rules the goodwill was invisible to the formula, so the only chargeable asset counted was the £2,000 share portfolio. The fraction became £0 over £2,000, holdover relief collapsed to essentially nothing, and the whole £2.5m gain was chargeable to CGT on a gift that raised no cash (Forbes Dawson). After the fix, the goodwill counts, the fraction becomes £2,000,000 over £2,002,000, relief runs to about 99.9%, and the taxable gain drops to roughly £2,498. That is not a tweak; it is the difference between a manageable gift and a landmine.
Should You Wait Until 6 April 2027 to Gift Your Shares?
For some owners, yes, and this is the single most useful sentence I can give you. If you run a trading company whose value is mostly post-2002 goodwill, and you are planning to gift shares to your children, and you can wait, holding off until the new tax year could be the difference between full relief and a painful bill. If you cannot wait, you need the restriction modelled properly under the current rules before anyone signs.
The audit instinct that runs through my approach to a new client's files matters here more than anywhere. I would never wave through a share gift of any size on the assumption that "it is a trading company, holdover just applies". It does not just apply, it is calculated, and the calculation had a hole in it. When owners come to me about succession, this is exactly the sort of thing I check before anyone celebrates, the same way I map how you take value out of a company and how share transactions are quietly shifting risk onto you.
One honest caveat. This is draft legislation, it is a narrow correction rather than a new relief, and it only bites where a company has the specific asset profile that was being mis-restricted. It is not a reason to rush a gift you were not otherwise going to make. For years the standard workaround was to strip out the non-business assets before gifting, an extra restructuring step with its own cost; this fix removes the reason for a lot of that dance, but only from April 2027.
Frequently Asked Questions
What is gift holdover relief and can I use it to give shares in my company to my children without a tax bill?
Gift holdover relief lets you give away shares in a trading company and defer the capital gain rather than pay CGT on a gift that raised no cash. The gain is not cancelled; it passes to your children through a reduced base cost, so they pick it up if they later sell. For a genuine trading company it is the standard tool for moving ownership down a generation, but it is restricted where the company holds significant non-trading assets, so it is not automatic.
Why is holdover relief restricted, and how does the formula work?
Relief is restricted when the company holds chargeable assets not used in its trade. The restriction apportions the gain by the value of chargeable business assets over the value of all chargeable assets, and holdover only shelters that proportion. The flaw being fixed is that post-2002 goodwill and substantial-shareholding-exemption assets were left out of the calculation, which could shrink the relief far below what the business actually justified.
Should I wait until 6 April 2027 to gift shares in my trading company?
Possibly, if your company's value is largely post-2002 goodwill and a gift is on your horizon. The fix applies to disposals on or after 6 April 2027, so waiting could move you from little relief to almost full relief. If you cannot wait, model the current restriction carefully before signing anything, because under today's rules the trap is still live.
Does this help if my company also holds a lot of cash and investments?
Only up to a point. The fix stops genuine business goodwill being wrongly excluded, but real non-trading assets, surplus cash and investment portfolios, still reduce the relief as they always have. If your company carries substantial non-business assets, the restriction can still bite, and that is exactly the case worth modelling in advance rather than discovering after the gift.
If a handover of your company is anywhere on the horizon, let's get it on the table now. I would rather map the timing and the restriction with you while there is room to plan than work out the bill after the shares have moved.