Consideration for disposal: market value rule: at arm's length
A bargain made at arm’s length is a normal commercial transaction between two or more persons. All of the parties involved will be trying to obtain the best deal for themselves in their particular circumstances.
This does not mean that a bad bargain cannot be a bargain made at arm’s length. For example Mr A may wish to sell his property quickly so that he can go and live in Malta. Mr B knows that Mr A wants to sell his property quickly so he offers him a low price for a quick sale. No-one else makes an offer. Mr A accepts the price Mr B has offered. This may not have been the best possible price which Mr A could have achieved if he had left the property on the market for longer but he was still trying to achieve the best deal possible for himself. It was a bargain made at arm’s length.
Another example where a bad bargain could nonetheless be a bargain made at arm’s length is where one party to the transaction has better information about the asset than another. For example Mrs S may sell a picture from her attic to Mr T for £500. Mr T, who is an art dealer, knows that the picture is worth £5,000. There has been a bargain with both people trying to get the best deal for themselves. Again, this is a bargain made at arm’s length even if the price paid is not the ‘market value’ of the asset.