Holdover Relief on Property: Incorporation, Gifts and Trusts Explained

You cannot use holdover relief to move your rental portfolio into a company. Transferring a property business to a company in exchange for shares is incorporation relief under section 162 TCGA 1992, a roll-over mechanism that is separate from holdover. Holdover relief (section 165 for gifts of business assets, section 260 for gifts into a chargeable trust) applies only to genuine gifts and trust settlements, and ordinary residential buy-to-let usually fails the section 165 business-asset test in any event. This page exists to settle that confusion, because the term people search for, "holdover relief property", almost always sits behind one of three quite different fact-patterns. Below, we separate the three reliefs, route each situation to the correct one, and point you to the specialist guide for the mechanics.

Why landlords confuse holdover relief with incorporation

The mix-up is understandable. All three reliefs defer capital gains tax, all of them involve "moving" property to someone or something else, and all of them live in the same statute, the Taxation of Chargeable Gains Act 1992. Search "holdover relief property" and the results blur incorporation, gifts and trusts together as if they were one relief with a single set of conditions. They are not.

The distinction that matters is the trigger. Incorporation relief is engaged by transferring a going-concern business to a company in exchange for shares: the gain rolls into the base cost of the shares you receive (s.162). Holdover relief is engaged by a gift, or a transfer at undervalue, or a settlement into a chargeable trust, where the recipient takes over your base cost rather than paying you (s.165 and s.260). One is a sale for shares; the other is a giving-away. Different transaction, different statute, different claim.

Getting it wrong is expensive. If you assume holdover covers your incorporation and structure the deal accordingly, you may find no relief applies the way you expected, leaving a capital gains tax charge you had planned around. Equally, treating a straightforward gift to a child as if incorporation relief were available leads to a claim HMRC will refuse. The relief has to match the deal, and the rest of this guide shows which one fits each common situation.

What holdover relief actually is (s.165 and s.260)

"Holdover relief" is really two reliefs. Both defer a gain by passing your base cost to the recipient, but they are triggered by different kinds of transfer.

Section 165, gifts of business assets. Where you give away an asset that is used in a trade, profession or vocation (or qualifying shares in a trading company), the gain that would otherwise arise on the deemed market-value disposal can be held over: you pay nothing now and the donee acquires the asset at your original base cost. The key word is business. Section 165 and Schedule 7 confine the relief to trading assets, which is why most residential lettings fall outside it (more on that below).

Section 260, gifts that are immediately chargeable to inheritance tax. Where a gift is itself a chargeable lifetime transfer for inheritance tax, most commonly a gift into a relevant-property (discretionary) trust, section 260 lets the gain be held over even though the asset is investment property. The transfer being inside the inheritance tax net is what unlocks the relief, so s.260 reaches residential property that s.165 cannot.

In both cases the gain is deferred, not erased. The recipient inherits the lower base cost, so the tax resurfaces when they eventually sell. For the deeper mechanics of both reliefs, including worked deferral comparisons, see our guide to CGT deferral strategies for property investors.

Putting your portfolio into a company: that is s.162, not holdover

This is the fact-pattern most people are actually asking about, and the answer is incorporation relief, not holdover. Section 162 applies where you transfer a property business to a company as a going concern, wholly or partly in exchange for shares. The relief is not optional in scope: it rolls the whole gain on the transferred assets into the base cost of the shares you receive, so you defer CGT on incorporation without a separate holdover claim being needed or available.

Two conditions trip landlords up most often.

It must be a business, not a passive investment. Section 162 relieves the transfer of a business, and HMRC routinely challenges whether a buy-to-let portfolio is one. The Upper Tribunal in Ramsay v HMRC [2013] accepted that a sufficiently active and substantial letting operation can amount to a business, but a small portfolio run with light-touch management may not clear the bar. This is a facts-and-degree test, and it is the point on which an incorporation most often succeeds or fails.

It must now be claimed. For transfers on or after 6 April 2026, incorporation relief is no longer automatic: you must make a claim, due on or before the first anniversary of the 31 January following the tax year of the transfer. A transfer in 2026/27 therefore has to be claimed by 31 January 2029, roughly twenty-two months after the transfer rather than the thirteen months people sometimes assume. The previous section 162A election to disapply the relief was repealed by Finance Act 2026, so the default position has flipped from "relief unless you opt out" to "no relief unless you claim".

For the full mechanics, including the business test and the SDLT trap, read our dedicated guide to section 162 incorporation relief for property landlords and the practical walk-through of how to incorporate rental property without triggering CGT.

Gifting property to your children: s.165 usually fails on buy-to-let

Here the relief people reach for is section 165 holdover, and on ordinary residential property it usually does not work. Start with the disposal itself: a gift to a child is a disposal to a connected person, deemed to take place at full market value under sections 17 and 286 TCGA 1992. So a chargeable gain can arise even though no money changes hands, calculated on the property's worth at the date of the gift.

Section 165 holdover would defer that gain, but only for business assets. Schedule 7 limits the relief to assets used in a trade, and ordinary residential letting is treated as investment, not trading. The reasoning that letting activity is investment rather than a trade has been applied across the tax code (for example in Pawson v HMRC [2013] in the inheritance tax context), and the practical upshot for CGT is consistent: a standard buy-to-let gifted to a child does not qualify for s.165.

So the typical result of gifting a rental flat to an adult child is CGT now, at 18% or 24% on the deemed market-value gain after the £3,000 annual exempt amount, plus a potentially exempt transfer for inheritance tax that needs you to survive seven years to fall out of your estate. There may be ways to soften this (for example splitting the gift across tax years, or transferring to a spouse first under the s.58 no-gain-no-loss rule), but holdover is not the automatic answer many assume. For the connected-person rules and the planning around family gifts, see gifting property to family members and CGT.

Gifting property into a trust: s.260 is the holdover that works

The one holdover route that genuinely works on residential property is section 260, and it is unlocked by inheritance tax rather than by trading. When you settle a property into a relevant-property (discretionary) trust, the transfer is an immediately chargeable transfer for inheritance tax. That chargeable status is exactly what s.260 requires, so the capital gain can be held over and the trustees take the property at your base cost.

There is one trap that catches more settlements than any other: the settlor-interested exclusion. Where the settlor, their spouse or civil partner can benefit from the trust, sections 169B to 169G deny holdover on the gift, so the gain crystallises immediately at market value as if you had sold. The definition that decides this is in section 169E (the meaning of "settlor"); section 169G separately defines "arrangement". Many landlords set up a trust intending to keep a benefit for themselves or a spouse and are surprised that this single feature switches off the relief.

The other side of the ledger is inheritance tax. A gift into a relevant-property trust above the available nil-rate band carries an entry charge, and the trust is then exposed to periodic (ten-year) charges of up to 6% of value and exit charges when assets leave. Section 260 can defer the CGT, but you are trading a CGT deferral for a long-term inheritance tax regime, so the trust has to make sense for reasons beyond the held-over gain. For the settlement mechanics and the ongoing trust charges, read putting a rental property into a trust, and for how s.260 sits alongside the other deferral options, CGT deferral strategies for property investors.

s.162 vs s.165 vs s.260: side by side

The quickest way to see why these three are not interchangeable is to line them up. The trigger transaction is different in each case, and that is what determines whether residential property qualifies at all.

Relief (statute)	Trigger transaction	Does residential buy-to-let qualify?	What happens to the gain	Claim or election?	Specialist page
Incorporation relief, s.162 TCGA 1992	Whole property business transferred to a company for shares	Yes, if it is a genuine business (Ramsay test)	Rolled into the base cost of the shares	Yes: claim by the first anniversary of the 31 January following the tax year of transfer (Finance Act 2026)	section 162 incorporation relief
Holdover on gifts of business assets, s.165 TCGA 1992	Gift of a business (trading) asset	Usually no: residential letting is investment, not a trade	Held over to the donee's base cost (when it applies)	Yes: joint election by donor and donee	gifting property to family members
Holdover on gifts into trust, s.260 TCGA 1992	Gift into a relevant-property (chargeable) trust	Yes: this is the holdover that works on buy-to-let	Held over to the trustees' base cost	Yes: claim; blocked if the trust is settlor-interested (ss.169B to 169E)	putting a rental property into a trust

Which one applies to you? A fact-pattern router

If you match your situation to the row below, the correct mechanism falls out, along with the one thing most likely to go wrong and the page that covers it in depth.

Your situation	Correct mechanism	Watch out for	Read next
I want to move my whole portfolio into my own company	Section 162 incorporation relief	The business test (Ramsay); SDLT 5% surcharge unless Schedule 15 partnership relief applies; you must now claim	Section 162 incorporation relief; incorporate rental property without CGT
I want to give a rental property to my adult child	Gift at market value (ss.17 and 286); s.165 holdover usually fails on buy-to-let	CGT now on the deemed gain, plus a PET for inheritance tax	Gifting property to family members and CGT
I want to settle a rental property into a discretionary trust	Section 260 holdover (works on residential property)	Settlor-interested block (ss.169B to 169E); inheritance tax entry and ten-year charges	Putting a rental property into a trust; CGT deferral strategies
I just want to defer CGT generally	Depends entirely on the transaction type	There is no single "property holdover"; match the relief to the deal	CGT deferral strategies for property investors

The costs holdover and incorporation do not remove: SDLT and the deferred gain

Two costs survive every one of these reliefs, and both catch people out.

Stamp duty land tax is not held over or rolled over. A transfer of residential property into a company is normally chargeable to SDLT on the market value of what is transferred, plus the 5% additional-dwellings surcharge that has applied since 31 October 2024. CGT relief does nothing for it. The only reliable mitigation on incorporation is partnership relief under Schedule 15 Finance Act 2003, and only where a genuine pre-existing letting partnership already exists; it is not a label you can attach at the point of transfer. For a worked figure on the transfer itself, see how to calculate CGT on a property transfer to a limited company, and for the end-to-end mechanics, how to transfer property into a limited company.

The deferred gain is a future liability, not a saving. Whichever relief applies, the gain sits inside a lower base cost: in your shares under s.162, in the asset for the trustees or donee under s.260 and s.165. Residential CGT is currently charged at 18% and 24% (with the £3,000 annual exempt amount) for individuals, while a company pays corporation tax on its chargeable gains with no annual exempt amount and no 18/24% rates. When the eventual disposal happens, the held-over gain returns on top of any further growth.

On the income side, the wider incorporation decision now turns partly on the April 2027 property income rates of 22%, 42% and 47%, enacted by sections 6 and 7 Finance Act 2026 (Royal Assent 18 March 2026) and applying in England, Wales and Northern Ireland, with only Scotland carved out. The section 24 mortgage-interest reducer rises to 22% in step, so no new basic-rate wedge opens. These rates affect whether to incorporate, but not which relief applies when you do.

Getting the mechanism right before you transfer

The costliest error in this area is not paying tax; it is claiming the wrong relief. Treat an incorporation as a holdover, or a buy-to-let gift as a business-asset gift, and the relief simply will not apply, leaving an unexpected CGT charge plus the time and cost of unwinding a return. Because these transfers are effectively irreversible, the analysis has to happen first.

A portfolio landlord we worked alongside had assumed holdover would cover their incorporation; on the facts the correct route was a section 162 claim with Schedule 15 partnership relief carrying the SDLT, which only worked because a genuine letting partnership was already in place. The relief that fits depends on the precise transaction, and modelling it before you act is the difference between a clean deferral and an avoidable bill. If you are weighing incorporation, a family gift or a trust, talk to a specialist who can confirm the mechanism for your situation.