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Capital Gains tax connected person rules


Don’t get caught out - if you transfer assets, normally property, to someone deemed as a ‘connected person’ you might receive an unwelcome tax bill even if you’ve not received a penny for the transfer. We go through a case study to demonstrate how this tax trap works.


Although it is possible to transfer assets between spouses at a value that gives rise to neither a gain nor a loss, giving a property to children or other family members may trigger an unwelcome capital gains tax bill, even if nothing was received it return.


THE MARKET VALUE RULE

Where assets are disposed of to a connected person, the transfer is deemed to take place at market value, regardless of whether any consideration is actually received and the amount of that consideration.


The list of connected persons includes:

  • spouses and civil partners;

  • relatives (siblings, ancestors or lineal descendants);

  • spouse or civil partners of relatives;

  • relatives or spouses or of civil partners; and

  • spouses or civil partners of those relatives.


However, as noted above, the no gain/no loss rule applies to transfer between spouses and civil partner rather than the market value rules.


The following case study illustrates the potential cost of being caught out by the market value rule.


This article written by Simon Howley was recently featured in Keller Williams newsletter.