Chapter 18 Gift relief restrictions

Question 1

Gift relief restrictions

Answer 1

Full gift relief is not available where there is a sale at an undervalue (sold at less than market value). A sale at undervalue is treated as a gift for CGT purposes. We calculate the gain by assuming sale proceeds are the market value. A sale at undervalue will result in gains being left chargeable after a gift relief claim has been made, the gain will be equal to the excess proceeds:
Excess proceeds = cash received – base cost
The difference between the gain and the chargeable gain at market value for CGT purposes is the gift relief, which will be rolled over and deducted from the donee’s base cost.
Interaction with entrepreneur’s relief – where a gain is eligible for both gift relief and entrepreneurs’ relief, gift relief is applied first, this means ER will not apply since there is no gain left in charge. If part of the gain is left chargeable then ER will apply. This is the same for interaction with investors relief.