CG14560 | Transactions between connected persons

Where the person who acquires an asset and the person who disposes of the asset are connected, they are treated as parties to a transaction otherwise than by way of bargain at arm’s length (s18). For the meaning of “connected” in this context, see CG14580.

As a result, the market value rule at s17 applies. The consideration is deemed to be equal to the market value of the asset at the date of disposal, see CG14530.

In addition s18 provides that any loss on the transaction becomes a ‘clogged loss’, see CG14561.

Time of disposal

To test whether persons are connected for the purposes of s18, you will need to look at the facts as they were at the time of disposal.

If there is no contract for disposal, this will be the time of actual disposal, see CG12700P.

Where the disposal has taken place under contract, the date used to consider whether persons are connected is the date of disposal fixed by s28, see CG14250P. This follows the Court of Appeal’s judgment in the case of Kellogg Brown & Root Holdings (UK) Ltd v HM Revenue and Customs [2010] EWCA Civ 118.

For a disposal under contract, the date at which you find market value will similarly be the date provided by s28, see CG14530.

For general guidance on the interaction between s28 and other legislation, see CG14261.