Dispositions not intended to confer bounty: second condition - arm's length transaction
In addition to satisfying the condition at IHTM04165 the parties have to show that the disposition (IHTM04164) either
- was made in a transaction at arm’s length (IHTM04164) between persons not connected with each other, or
- was such as might be expected to be made in a transaction at arm’s length between persons not connected (IHTM04164) with each other.The test at a. can be settled quite factually. If the bargaining parties are unconnected and at arm’s length and there was no intention to confer bounty, then on the face of it the disposition is not a transfer of value. (
IHTM04024) If the parties are connected or are not at arm’s length, or both, you have to apply the test at b.
This is concerned with whether the disposition under consideration is one which is likely to have taken place objectively between unconnected persons dealing with each other at arm’s length. The application of the test at b. (in FA75/S20 (4), from which IHTA84/S10 is derived) was considered by the Court of Session (Inner House) in IRC v Spencer-Nairn  STC 60.