Answers · UK 2025/26
Who is a "connected person" for UK tax purposes?
For CGT and other UK tax purposes, connected persons include your spouse or civil partner, relatives (parents, siblings, children, grandchildren), their spouses, and companies you control. Transactions between connected persons are treated as being at market value, even if no money changes hands, to prevent artificial loss creation.
Full answer
The concept of "connected persons" is central to many UK tax anti-avoidance rules. The statutory definition is in section 286 TCGA 1992 (for CGT) and section 993 ITA 2007 (for Income Tax). For Capital Gains Tax purposes, a person is connected with: their spouse or civil partner; their relatives -- meaning brothers, sisters, ancestors (parents, grandparents) and lineal descendants (children, grandchildren); the spouses or civil partners of those relatives; and any company that the person or their associates control (or that two or more of these connected persons together control). Half-siblings are also included. Former spouses are NOT connected after divorce (only during the marriage). Companies: a company is connected with another company if both are under common control, or if the same person controls both. An individual is connected with a company they control. A partnership: partners are connected with each other in relation to partnership transactions. Tax consequences of being connected: (1) Disposals at undervalue -- any disposal to a connected person (including a gift) is treated as made at market value for CGT purposes, regardless of the actual price agreed. (2) Losses -- CGT losses arising from disposals to connected persons can only be set against gains arising from disposals to the same connected person, not against general gains. This prevents artificial loss harvesting within families. (3) Income Tax -- HMRC can challenge income-splitting arrangements between connected persons (particularly a spouse or company) as settlements, where income is shifted to exploit a lower tax rate. (4) IHT -- gifts between connected persons may be tracked as potentially exempt transfers (PETs) or chargeable lifetime transfers (CLTs). (5) Corporation Tax transfer pricing -- transactions between connected companies must be on arm's-length terms. Practical implication: always get a formal market valuation when transferring assets to connected persons, as HMRC can challenge the base cost used for future CGT calculations.
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This answer is informational only and does not constitute financial, tax or legal advice. Figures are for the 2025/26 UK tax year. See our methodology and sources.