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HMRC internal manual

Shares and Assets Valuation Manual

HM Revenue & Customs
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Capital Gains Tax Procedures - Transactions at arm's length - the market value rule

Occasionally the circumstances of a taxpayer’s acquisition and/or disposal of shares may lead the Inspector to question whether the transaction was one negotiated at arm’s length even though the parties to the transaction were not connected persons within Section 18 TCGA 1992. In such cases the Inspector may ask SAV for an informal opinion of value.

In such cases you must first consider whether the price paid represented a bargain made at arm’s length. When reaching your decision you must take into account all the circumstances surrounding the actual sale or acquisition. At this stage you are not considering a hypothetical sale between hypothetical parties. If you conclude on the information available to you that the price paid was not one that you would have expected the parties to negotiate in a transaction at arm’s length, you should then provide the Inspector with your estimate of the statutory open market value of the shares in question.

It is for the Inspector to pursue the matter with the taxpayer in accordance with the instructions in the CG Manual at CG14542+. You should not enter into negotiations with the taxpayer or his/her agent unless they have agreed with the Inspector that the market value rule (Section 17(1) (a)TCGA) applies.

  Additional Guidance: SVM150000