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HMRC internal manual

Capital Gains Manual

Close companies: transfers at undervalue: general

Where a taxpayer transfers an asset otherwise than by way of a bargain made at arm’s length TCGA92/S17 treats them as having sold the asset at market value, see CG14530+. The transferee is also treated as having acquired the asset at market value. If the transfer is at undervalue the transferee will have a Capital Gains Tax base cost which is higher than the amount they paid for the asset. Such transfers are only likely to occur between connected persons. The transferor is unlikely to be willing to suffer a chargeable gain or forego a capital loss to give a third party a tax benefit.