What is Connected Person (Tax)?

Full Definition

The concept of a connected person appears throughout UK tax legislation and triggers market value substitution rules to prevent tax advantages from artificial transactions. The main statutory definitions are in TCGA 1992 s286 (for CGT) and ITA 2007 s993 (for income tax purposes). For CGT, a person is connected with: their spouse or civil partner; the brothers, sisters, ancestors and lineal descendants of either of them and their spouses or civil partners; a company they control (alone or with their connections); a company under common control with a connected company; and partners in a partnership and their relatives. Key CGT consequences of dealing with a connected person: (1) Market value substitution -- the disposal is treated as made at market value regardless of the actual consideration paid. (2) Loss restriction -- a capital loss made on a disposal to a connected person can only be offset against gains from a disposal to the same connected person, not against gains generally. (3) Gifts -- transfers to connected persons other than a spouse or civil partner are treated as disposals at market value and may trigger a CGT charge unless Hold-Over Relief or other relief applies. For IHT, the related concepts of associated operations and connected persons affect whether gifts are treated as independent or as part of a scheme. For employment tax, the benefit-in-kind rules extend to benefits provided to members of an employee's family and household, broadly defined. Transfer pricing (for corporation tax) applies a similar arm's length principle to transactions between connected companies. Statutory definition: TCGA 1992 s286; ITA 2007 s993; CTA 2010 s1122.

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