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HMRC internal manual

Capital Gains Manual

Capital Gains Manual: Introduction and computation: occassions of charge: exchanges of assets: introduction: market value rule: compare with arm’s length transactions: liaison between HMRC offices


These instructions tell you what happens when assets are exchanged between parties and where consideration is not always paid. The exchange of one asset for another is a chargeable occasion for both parties involved.

There are, however, special rules which apply in cases involving

  • the conversion of securities (see CG55000 onwards),
  • certain exchanges of shares or debentures (see CG52521 onwards),
  • the transfer of a business to a company in exchange for shares (see CG65700 onwards), or
  • the exchange of joint interests in land (see CG73000 onwards).

Market value rule

You will come across cases where assets have been exchanged in situations where the transactions are otherwise than by way of a bargain made at arm’s length, see CG14540+. These include transactions between connected persons, see CG14580+.

In such cases the disposal proceeds are taken as the market value, at the date of exchange, of the asset disposed of, see TCGA92/S17 (1). CG13094 (Example 1) shows you how this works.

Compare with arm’s length transactions

In most exchanges of assets the disposal proceeds are taken as the market value of the asset disposed of. However, if you compare this with an arm’s length transaction, the disposal proceeds are measured by the market value of the asset received. The difference is that, in the case of an arm’s length transaction, the value of the assets at the date of exchange would be expected to be the same and, if not, the parties to the exchange would make any necessary cash adjustment, which would, itself, represent consideration. This will not necessarily apply in every case. 

See also CG13096 where you might consider a cash adjustment should have been made.


Where necessary, valuations for both taxpayers who have exchanged assets should be considered together.

You should note, however, that a valuation will not normally be necessary where an asset is acquired by a company in an exchange at arm’s length for an issue of its own shares and the price at which those shares are to be allotted is specified in the contract, see Stanton v Drayton Commercial Investment Co Ltd (55TC286). You can accept the contract price in such cases, although Capital Gains Technical Group would like to see any case where there is a long delay between the making of the contract and the issuing of the shares.