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HMRC internal manual

Capital Gains Manual

Assets: valuation: transfer at undervalue: employee/director: disposals on or after 6 April 1995

Computing the gain

For disposals on or after 6 April 1995 you should compute the gain arising to the employer using market value in accordance with TCGA92/S17 (l)(b) see CG14530. In some cases the employer may be entitled to a deduction in computing profits, see BIM47110.

Cost to employee

The employees or directors cost of acquisition is the market value of the asset transferred whether or not that market value has been taken into account in computing the chargeable gain accruing to the employer, see CG14530.


If a company transfers an asset to a member in exchange for cash consideration which is less than the market value of the asset at the date of transfer the shortfall may be treated as a distribution under CTA2010/S1020 see CTM15290. If the person to whom the asset is transferred is both an employee or director and a member of the company you should first consider the possibility of liability as employment income before considering whether the shortfall should be taxed as a distribution.

If the shortfall is treated as a distribution under Section 1020 the deemed consideration to be brought into the company’s computation of chargeable gains will be the market value of the asset at the date of the transfer, TCGA92/S17 (1)(a), see CG14530. There is no equivalent to the treatment which is described at CG16270+ when the shortfall is taxed as employment income. TCGA92/S125, which deals with transfers of assets at undervalue by a close company should not be applied, see CG57127.