Draft legislation has been published to correct an anomaly in Capital Gains Tax holdover relief rules for gifts of business assets, affecting succession planning and lifetime dispositions.
HMRC Publishes Draft Legislation to Correct CGT Holdover Relief Anomaly on Business Asset Gifts
Draft legislation has been published to correct an anomaly in the Capital Gains Tax (CGT) holdover relief rules for gifts of business assets. This technical update addresses a longstanding issue that practitioners should understand, as it affects the tax treatment of lifetime business dispositions and succession planning.
What Is the Anomaly?
Holdover relief under section 165 of the Taxation of Chargeable Gains Act 1992 (TCGA) allows business owners to defer CGT on certain gifts. Historically, practitioners have identified inconsistencies in how the relief applies to gifts of business assets, particularly where the rules interact with anti-avoidance provisions and the statutory definition of "eligible assets." The anomaly centres on specific circumstances where the current drafting of the relief creates unintended gaps or interpretative difficulties, making it unclear whether particular transactions qualify for relief.
Why Does This Matter?
For accountants advising owner-managers, family business succession and business restructurings, the treatment of holdover relief is commercially significant. If a client gifts a business asset without certainty about relief entitlement, they may face an unexpected CGT bill. Conversely, HMRC may subsequently challenge relief claimed in good faith, leading to assessments, penalties and compliance costs. The draft legislation is designed to clarify the position and restore certainty.
If a capital item fell within the CGS before 29 July 2026, it will stay in the CGS until the end of its adjustment period. This temporal rule signals that HMRC is implementing reforms with careful attention to transitional arrangements—practitioners should cross-reference specific asset categories with the published draft to understand whether legacy dispositions are affected.
Consultation and Timeline
The publication of draft legislation marks a significant stage in the policy development process. Practitioners and representative bodies, including ICAEW, are expected to submit detailed technical feedback on the proposed wording. Comments typically focus on unintended consequences, practical compliance challenges and interaction with other reliefs. This is a genuine opportunity for professional bodies and firms to shape the final statutory language.
Given that this appears in August 2026, practitioners should anticipate:
- A formal consultation period (likely weeks, not months)
- Refinement of the draft based on technical feedback
- Integration into the forthcoming Finance Bill 2026–27 or the next available legislative vehicle
- Transitional provisions protecting earlier transactions taken in good faith
Practical Steps for Practitioners
First, review any recent client advice given on business asset gifts. Where holdover relief was claimed or declined in the past 18 months, re-assess whether the facts remain legally sound under the emerging corrected rules. This is not an admission of error, but rather prudent file-management and client relationship management.
Second, monitor ICAEW, ACCA and CIOT announcements. These professional bodies will publish detailed analysis once the full draft is publicly available, and may co-ordinate responses to the consultation. Their technical guidance will help practitioners understand the precise scope of correction.
Third, if you are currently advising on a business succession involving gifts of business assets, do not commit to a final tax position until the draft legislation is published in full. A temporary deferral of final advice, with an explanation to clients that legislative clarification is imminent, is preferable to advising on an ambiguous legal rule.
Looking Ahead
This correction reflects HMRC's broader commitment to tax simplification and certainty, announced in the Tax Update published in June 2026. By addressing technical anomalies proactively, HMRC aims to reduce disputes and improve the efficiency of the tax system. Practitioners who stay informed about these developments—and who feed technical expertise into the consultation process—will be best positioned to serve clients confidently.