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Each of the last three Finance Acts has closed tax avoidance loopholes. Dawn Primolo has recently announced in Parliament that the Government intends to introduce anti-avoidance legislation in relation to capital gains tax gifts relief in the next Finance Act.


Capital gains tax (CGT) hold-over relief is a very important relief that can be used very effectively in estate planning. In essence where a person makes a gift of:

 Business assets (which include shares in an unquoted trading company) to another individual or trust or

 Investment assets to a discretionary trust

CGT can be deferred by a claim for hold-over relief.

Over the years the relief has been cut back considerably. The ability to claim hold-over relief on gifts of investments to individuals or trusts generally was removed in 1989 and the Chancellor announced his intention to remove CGT hold-over relief on gifts of business assets to companies in his recent pre-Budget report. This blocks a particular offshore tax planning ploy to avoid CGT on sales of private company shares.

It is likely that this is the tax avoidance legislation Dawn Primolo is referring to now. But her statement does serve as a reminder of the other very useful form of hold-over relief that exists, namely the ability to make use of a discretionary trust as a means of making a gift without immediate CGT. The justification for hold-over relief in these circumstances is that immediate inheritance tax (IHT) could be paid but, of course, if the gift falls within the IHT nil-rate band no immediate IHT charge would arise.

Changes to this relief cannot be ruled out in the future. Therefore, subject to the usual caveats as to age and health of the donor, if gifts of investments to a discretionary trust are being contemplated by a person with a view to inheritance tax planning without immediate capital gains tax, then it makes sense to consider action before the 2000 Budget. Of course, it is possible to make gifts that don&#39t attract immediate CGT if gifts of life policies such as investment bonds are made. Such investments are not generally subject to CGT and no tax liability arises on gifts no matter to whom they are made.


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