HMRC embraces digitalisation of signed holdover relief claims
By Chris Campbell, Head of Tax (Tax Practice and Owner Managed Business Taxes)
20 November 2023
Based on feedback from ICAS members, we look at recent changes announced by HMRC on the retention of signed holdover relief claims for capital gains tax.
The capital gains tax legislation allows taxpayers to claim holdover relief under section 165 of the Taxation of Chargeable Gains Act 1992 (TCGA 1992) in respect of the gift of qualifying business assets, unlisted shares and agricultural land. Section 260 TCGA 1992 enables holdover relief to be claimed in respect of gifts chargeable to inheritance tax and certain assets which are exempt for inheritance tax. Partial relief is also available where there is consideration for the disposal of a chargeable asset for capital gains tax purposes, but this is less than the market value of the asset.
Guidance on the operation of holdover relief can be found on HMRC help sheet 295. Where holdover relief is claimed, the capital gains tax base cost of the transferee is reduced by the amount of gain deferred. This could result in additional capital gains tax being payable by the transferee when they eventually dispose of the asset, however, this recognises that there has either been a gift or the transfer of a chargeable asset for below market value.
Mechanics of claiming holdover relief
To claim holdover relief, it is necessary for both the transferor and the transferee to complete and sign a holdover relief claim form. This sets out the details of the claim, including the market value of the asset being transferred. It is possible to claim for the valuation of the asset to be deferred, in which case the estimated market can be used, this can be helpful if there is no non-tax reason for a valuation to be carried out.
Requirement to retain paper copies of signed holdover relief claims
Whilst HMRC had confirmed that it was possible to submit holdover relief claims to HMRC by attaching a scanned PDF of the completed signed form, the original guidance stated that it was necessary to retain a copy of the original signed holdover relief claim for future reference or if HMRC asks to see it. This caused practical challenges for accounting firms conducting a paperless practice, as this made it a requirement to retain signed paper holdover relief claims when all of other routine documentation would normally be stored digitally.
Following feedback from our members, we have been in discussions with HMRC to ask it to reassess the need to retain a paper copy. HMRC has now reviewed its policy.
What has changed?
As the direct result of ICAS feedback, HMRC clarified the position in issue 114 of agent update and we understand that other dated in the coming weeks.
Going forward, it will still be necessary to retain a copy of signed holdover relief claims, but HMRC has confirmed that a digital PDF copy will be acceptable and it is no longer necessary to retain the paper copy. This is welcome news, given that more accounting firms are becoming fully digital and no longer retain paper client files.
Let us know your views
We welcome your views, which help inform our work on consultations or other tax-related matters. ICAS responds to many tax calls for evidence and consultations, as well as producing tax policy papers and reports. We also regularly attend meetings with HMRC at which service levels, delays and other issues are discussed, and we raise problems being encountered by members.
Please email tax@icas.com to share your insights and feedback.
