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HMRC internal manual

Capital Gains Manual

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HM Revenue & Customs
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Consideration for disposal: market value rule

Normally the consideration for the disposal of an asset is what the person who makes the disposal gets for it. And the acquisition cost of the person who acquires the asset is the consideration which that person gave. But in certain circumstances the consideration which actually passes between the parties to the transaction is ignored. Instead, the consideration is deemed to be equal to the market value at the date of disposal of the asset disposed of. The same figure is used as the acquisition cost of the person who acquires the asset.

TCGA92/S272

The market value of an asset is the price which that asset might reasonably be expected to fetch on a sale in the open market. The instructions on how to obtain valuations are summarised at CG16200+.

TCGA92/S17 & TCGA92/S18

YOU USE THE MARKET VALUE OF THE ASSET INSTEAD OF THE ACTUAL CONSIDERATION WHICH PASSED BETWEEN THE PARTIES WHERE

  • THE TRANSACTION IS OTHERWISE THAN BY WAY OF A BARGAIN AT ARM’S LENGTH, in particular?

    • a gift
    • a transfer into settlement by a settlor
    • a distribution of assets by a company to its shareholders
  • the asset is disposed of

    • wholly or partly for a consideration which cannot be valued, or
    • in connection with the loss of office or employment or reduction of earnings to any person, see CG16270+, or
    • in consideration for or in recognition of the services of any person
  • THE DISPOSAL AND ACQUISITION OF THE ASSET IS BETWEEN ‘CONNECTED PERSONS’ (defined in CG14580+)
  • WHERE A DISPOSAL IS DEEMED TO TAKE PLACE AT MARKET VALUE,

for example

* where a beneficiary becomes absolutely entitled to property as against a trustee
* where, in the hands of trustees, assets are deemed to be disposed of and immediately reacquired on the termination of a life interest.
For guidance on the operation of the market value rule where assets are acquired or disposed of on exercise of an option, see CG12395+
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