Can anyone clarify the position here. A client wishes to settle shares which will carry ER as it is his personal company so if the shares are sold later within the next 4 years he would get ER on the deemed MV disposal value. However he would want to elect holdover if the shares have not been sold by the time he comes to have to pay CGT.
Ideally given the 4 year period, he would want to elect holdover by Jan 2021 but then revoke the election if the shares are sold later. Alternatively he would pay CGT if he could later claim holdover if the shares are not sold.
Checking various sources, one says that a holdover claim cannot be revoked but others say this is possible and HMRC even illustrate this in their guidance. Could a prior holdover election be revoked within the 4 year election period with tax and interest becoming payable or can tax be paid when due and an election made later with the CGT paid then recovered?
Michael Jepson
M J Consultants
Consultant with BDB Pitmans LLP London
I have recently seen an argument from HMRC that Sch 1A Para 3(1)(b) prevents a claim for holdover relief being withdrawn after 12 months has expired from the date of the claim. I am not convinced that this is correct, but it tells us the attitude that HMRC are currently adopting.
Note also that the time limit for ER claims is the first anniversary of 31 January following the tax year in which the disposal is made (TGCA1992 s169M).
My understanding is that a claim can be revoked, but only if this is done within the normal time period for correcting the SA return for the period in which the disposal happens. If you want to keep your options open for the longest period possible then the safer option is not to make the claim until just before the deadline. However in the meantime CGT will have to be paid.
Holdover relief on gifts into trust is ‘clawed back’ if the trust becomes settlor interested and so one further possibility is to ensure there is the possibility of the trust becoming settlor interested. That would potentially give your client the ability to avoid paying CGT up front, but still to ‘revoke’ the election (even somewhat beyond the 4 year period) i.e. if the trust became settlor interested so the relief was clawed back. This tactic should probably be used with care.
My understanding is the same as Paul’s, namely, a claim may be revoked within the time frame applicable to that when making an amendment to a self assessment return eg if disposal relevant to the hold-over relief claim is made in tax year 2018/19 then a withdrawal may be made on or before 31 January 2021.
Thanks for these comments. Given the four year period for making an election, then, presumably, the only practical way of keeping this option open is to pay the CGT tax on the due date and later elect holdover within that longer time frame and then reclaim the tax. Otherwise, it appears that there is no other way in which you could defer election of holdover after the relevant tax return date i.e. if you cannot revoke a prior election after that date.
The ER time limit is relevant here. Where that is relevant, it would need to be claimed before the tax is payable so that it is paid at the lower rate, but presumably with a later holdover relief, within the 4 year period, still being an option .
Michael Jepson
M J Consultants
Consultant with BDB Pitmans LLP London