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HMRC internal manual

Venture Capital Schemes Manual

HM Revenue & Customs
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Share Loss Relief: individual and corporate claimants: individual claimants: disposals and deemed disposals

One of the cardinal preconditions for Share Loss Relief is that shares be disposed of. The most obvious form of disposal is a sale for money or other consideration, but for the purposes of TCGA 1992 other events are also treated as disposals and can give rise to chargeable gains or allowable losses, and some (but not all) of these other events are also disposals for Share Loss Relief purposes.

The arm’s length requirement

Where other parties are involved, the disposal must be by way of a bargain at arm’s length. There is no statutory definition of a ‘bargain made at arm’s length’ (also known as an ‘arm’s length bargain’). In the context of a disposal, it does not mean that any consideration given must be the ‘market value’ of the asset disposed of, but if a disposal is not by way of a bargain at arm’s length then market value of the asset disposed of is substituted for the actual consideration, see TCGA92/S17 and S18 and guidance at CG14560+.

A ‘bargain made at arm’s length’ is a normal commercial transaction between two or more persons. All of the parties involved will be trying to obtain the best deal for themselves in their particular circumstances. Whether a particular outcome represents this ‘best deal’ is to be determined by reference to the particular circumstances of the disposal.

Before the Share Loss Relief rules were rewritten for ITA 2007, previous versions demanded that the disposal was by way of a bargain made at arm’s length for full consideration. The rewrite deleted the words ‘for full consideration’ as they did not impose any additional requirement: the meaning of the statute was therefore unchanged in ITA 2007.

For guidance on the meaning of a bargain at arm’s length, see CG14540+.