SolvedCG14530 | Consideration for disposal: market value rule
From HM Revenue & Customs · Capital Gains Manual
Normally the consideration for the disposal of an asset is what the person who makes the disposal gets for it. Similarly the acquisition cost of the person who acquires the asset is the consideration which that person gave. But in certain circumstances the consideration which actually passes between the parties to the transaction is ignored. Instead, the consideration is deemed to be equal to the market value at the date of the disposal of the asset disposed of. The same figure is used as the acquisition cost of the person who acquires the asset.
The market value of an asset is the price which that asset might reasonably be expected to fetch on a sale in the open market. The instructions on how to obtain valuations are summarised at CG16200C.
You use the market value of the asset instead of the actual consideration which passed between the parties where:
The transaction is otherwise than by way of a bargain made at arm's length, in particular:
a gift
a transfer into settlement by a settlor
a distribution of assets by a company to its shareholders
The asset is disposed of:
wholly or partly for a consideration which cannot be valued, or
in connection with the loss of office or employment or reduction of earnings to any person, see CG16270+, or
in consideration for or in recognition of the services of any person
The disposal and acquisition of the asset is between 'connected persons' (defined in CG14580+). Where a disposal is deemed to take place at market value, for example:
where a beneficiary becomes absolutely entitled to property as against a trustee
where, in the hands of trustees, assets are deemed to be disposed of and immediately reacquired on the termination of a life interest.
For guidance on the operation of the market value rule where assets are acquired or disposed of on exercise of an option, see CG12395+
What is the valuation date?
Where the market value rule applies, you will need to know the time of acquisition or disposal, as the market value of an asset may be different at different times.
CG14250 provides guidance on determining the date of disposal or acquisition.
Where the disposal has taken place under contract, the time used to assign the market value for the purposes of s17 is the date of disposal fixed by s28, see CG14250P.
Example
On 12 May 2023, Mr Blue entered into an unconditional contract to sell a painting to his sister. Mr Blue disposed of the painting to his sister on 1 September 2024.
Because that disposal took place under contract, s28 applies. So although the actual disposal took place in on 1 September 2024, s28 provides that any chargeable gain is treated as arising on 12 May 2023 (the date the contract was made).
As Mr Blue sold the painting to his sister, a connected person, the consideration is deemed to be the market value of the asset. It is necessary to know the market value of the asset on 12 May 2023.