Syllabus A2. Chargeable gains A2d. Principles of computing gains and losses

A2di. Connected Persons

Syllabus A2di)

Identify connected persons for capital gains tax purposes and advise on the tax implications of transfers between connected persons

CGT Implications

Who are connected persons for CGT?

Connected persons include:

  • Relatives (brothers, sisters, parents, grandparents, children)

  • Spouse's Relatives

  • Business Associates (partner, partner's spouse, partner's relatives)

Disposals to connected persons

Disposals to connected persons will be assumed to be at market value, regardless of the consideration that the connected person has paid. 

This excludes disposals to spouse/civil partner, as these are exempt for CGT.

  • If a capital loss arises on the disposal to a connected person, this capital loss can only be relieved against a capital gain arising from a disposal to the same connected person.


Jane is planning on ceasing her business and passing the assets to her daughter.


Trading premises
Cost £100,000
M.V. £200,000

Cost £10,000
M.V. £11,000

If Jane gifts the business to her daughter, what capital gain will arise?

  • Solution

    Sale proceeds (M.V.) £200,000
    Less cost (£100,000)
    Capital gain £100,000

    Inventory is an exempt asset for capital gains tax.

    Note, the daughter is a connected person - therefore the sale is deemed to take place at market value, even though no consideration has been given.

Successions to trade between connected persons - capital allowances

If the business is being transferred:

  • As a going concern

  • To a connected person

THEN ... An election is available to transfer the assets at their TWDV (instead of market value) and therefore avoid any balancing charges or balancing allowances.


Julie has been trading as a sole trader since 2008 and has always prepared her accounts to 31 December. 

She wants to retire on 31/12/2018 and either sell her business to an unconnected person or give the business to her daughter so that she can continue to run the business. 

The values of her plant and machinery at 01/01/2019 are:

Main pool items:

TWDV £24,000
MV £37,000

What are the tax consequences if she sells the business to an unconnected person?
What are the tax consequences if she gives the business to her daughter and she continues to run it?


  • Selling to an unconnected person:

    Sale proceeds (MV) £37,000
    Less TWDV (£24,000)
    Balancing charge £13,000 (I.T. will be payable on this)

  • Giving business to her daughter (connected person):

    The assets will be assumed to be transferred at TWDV, therefore no balancing charge will arise and no income tax will be payable.