Section A

David gifted shares in his personal trading company to his son, Leo. The shares had a market value of £100,000 and originally cost David £20,000. David and Leo jointly elect for Gift Hold-over Relief (Business Asset Gift Relief).

What is Leo's base cost for the shares for Capital Gains Tax purposes?

Answer options:

£100,000

£80,000

£20,000

£0

How to approach this question

Calculate the gain (Market Value - Cost). Deduct the held-over gain from the Market Value to find the donee's base cost.

Full Answer

C.£20,000✓ Correct

The gain on the gift is Market Value (£100,000) - Cost (£20,000) = £80,000. By electing for Gift Hold-over Relief, this £80,000 gain is deferred. Leo's base cost is the Market Value (£100,000) minus the held-over gain (£80,000), which equals £20,000. Effectively, the donor's original cost becomes the donee's base cost.

Common mistakes

Confusing the held-over gain with the base cost.

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