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Capital gains tax: valuation and arms length principle

Under S17 TCGA 1992 a person&#39s acquisition or disposal of an asset can be deemed to be for consideration equal to the market value of the asset where the disposal is otherwise than by way of bargain made at arms length ie. not just when the parties are connected with each other. In the case of any transactions between unconnected parties at obviously less the market value then there is a subjective test to be applied as to whether the bargain is made at arms length or not and whether one of the parties to a transaction has the intention of conferring a gratuitous benefit on the other party to the transaction. If they do then it seems that the transaction between them will be one that is otherwise than by bargain made at arms length. If this is the case the market value rule applies.

There are a number of issues to consider in determining whether there is an intention to confer a gratuitous benefit or not.

– The presence or absence of real negotiations between the parties about the terms of the transaction

– How the terms of the transaction compare with those in similar transactions.

– Whether the parties have separate legal or other professional representation.

– Whether the parties had received independent advice.

– The character of any comparable prior dealings between the parties.

– Whether the transaction between the parties may be linked with any other transaction between the same parties.

– The relationship between the parties outside the transaction in question.

In the case of Bullevant Holdings Ltd -v- Inland Revenue Commissioners (1998) STC 905 unusually the taxpayer argued for a higher value than that agreed on the basis that the agreement was other than at arms length. The taxpayer&#39s appeal was dismissed on the basis that the price was indeed negotiated at arms length (based on the facts of the case) and there were good explanations for the low price.


It is important, despite the Bullevant case, however, for anybody seeking to argue that even where a low price was agreed the arrangement was nevertheless at arms length take fully into account that the Bullevant case was decided on its facts and that it will be the facts of each case that will determine the outcome on what is a very subjective issue.


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