Connected Persons Rules
For tax purposes, 'connected persons' are individuals and entities that HMRC considers to be closely linked. When you sell an asset to a connected person, special Capital Gains Tax rules apply.You are considered connected to your immediate family and certain business partners. The rules exist to prevent people from artificially reducing their tax bills by selling assets to people they know for less than they are worth.
Who is a connected person?
For an individual, your connected persons include:
- Your spouse or civil partner.
- Your direct relatives (parents, children, grandparents, grandchildren, etc.).
- The spouse or civil partner of your direct relatives.
- A company that you control.
- The trustees of a settlement that you have created.
The Market Value Rule
When you sell or give an asset to a connected person, for Capital Gains Tax purposes, you are treated as if you sold it for its full market value, even if no money actually changes hands.
This means you will pay CGT based on what the asset was worth, not what you sold it for. Furthermore, if you sell at a loss, that loss can only be used to offset future gains made on disposals to that same connected person.