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HMRC internal manual

Capital Gains Manual

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HM Revenue & Customs
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Assets: valuation: transfer at undervalue: employee/director: consideration

Where an asset is transferred by an employer to an employee or a director, the consideration will be deemed to be at market value on the date of transfer if TCGA92/S17 (1)(b) applies, see CG14530. The consideration is deemed to be at market value if the transfer is in connection with the transferee’s office or employment or in connection with the transferee’s loss of that office or employment.

If the asset is transferred at less than its market value the difference between the price paid by the employee or director and the value of the asset received will usually be chargeable under employment income as earnings arising from the office or employment, see EIM08001+.

So if the transfer is treated as taking place at the market value of the asset there may be a double charge to tax at the transfer date on the difference between the price paid and the market value, being taxed as employment income on the employee or director and as a Capital Gain arising on the company.

There has been a change in our practice in such cases. For disposals which took place before 6 April 1995, due to the potential for an employment income charge, the transfer was not treated for Capital Gains Tax purposes as taking place at the market value of the asset. This practice has now been withdrawn, though it will continue to apply to disposals which took place before 6 April 1995. The treatment to be followed will depend therefore on the date of disposal.

For disposals before 6 April 1995 please contact Specialist Personal Tax CGT for advice. For disposals on or after 6 April 1995 see CG16280.