For Capital Gains Tax, your connected persons are your spouse or civil partner, your brothers, sisters, parents, grandparents, children and grandchildren, the spouses of those relatives, your spouse’s relatives, your business partners, companies you control and the trustees of any settlement you created. A disposal to a connected person is treated as not at arm’s length, so HMRC uses market value rather than the price paid. Losses on those disposals can only be used against gains on disposals to the same person.
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Who counts as a connected person for Capital Gains Tax?
The list is set out in section 286 of the Taxation of Chargeable Gains Act 1992 (TCGA 1992). The connection works both ways, so if you are connected with someone, they are connected with you. An individual is connected with:
- their spouse or civil partner;
- their relatives, meaning brothers, sisters, ancestors (parents, grandparents and so on) and lineal descendants (children, grandchildren and so on);
- the spouse or civil partner of any of those relatives;
- the relatives of their own spouse or civil partner, and the spouses or civil partners of those relatives.
Are aunts, uncles, nephews, nieces and cousins connected?
No. HMRC’s Capital Gains Manual confirms that aunts, uncles, nieces and nephews are excluded, and cousins do not appear in the list either. But a gift, or a sale that is clearly not a commercial bargain, is still valued at market value under section 17, whoever receives it.
When are business partners, companies and trustees connected?
Partners are connected with each other and with each other’s spouses, civil partners and relatives. This does not apply to disposals of partnership assets under genuine commercial arrangements.
A company is connected with a person who controls it, whether alone or together with people connected with them. Two companies under the same control are connected, as are people acting together to control a company.
The trustees of a settlement are connected with the settlor, anyone connected with the settlor, and certain companies connected with the settlement.
What is the market value rule for connected persons?
Section 18 says that when you acquire an asset from, or dispose of one to, a connected person, the transaction is treated as not being a bargain at arm’s length. Section 17 then replaces the actual price with the market value of the asset at the date of disposal.
The price you agreed is irrelevant. Even if you and your daughter negotiated what you both believe is a fair figure, the consideration is deemed to be market value. If the real value is higher, you pay tax on a gain you never received in cash.
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What happens if I sell property to a family member below market value?
Suppose you sell a buy to let flat to your son for £150,000 when it is worth £250,000. For Capital Gains Tax you are treated as selling for £250,000, and your son is treated as buying for £250,000, which becomes his base cost. Your gain is worked out on the full market value, at the rates shown in our guide to Capital Gains Tax rates.
For UK residential property, any tax due on that deemed gain must usually be reported and paid within 60 days of completion. Our page on the 60 day property return explains the process. A sale of your own main home may still qualify for private residence relief, so the market value rule matters most for second homes, rental property and land.
Is gifting shares or property to my children taxable?
Yes, potentially. A gift is a disposal, and because your children are connected with you, it is treated as a disposal at market value.
Relief may be available. If the shares are in your own trading company, or the asset is used in a trade, you and the recipient may be able to claim to defer the gain. See our guide to gift holdover relief for the conditions.
Can I use a loss on a sale to a family member?
Only in a limited way. Under section 18(3), a loss on a disposal to a connected person is a clogged loss. It can only be set against gains on other disposals to that same person, in the same or a later tax year, and only while you are still connected with them. You cannot use it against gains on shares you sell on the open market.
How are transfers between spouses and civil partners treated?
Spouses and civil partners who are living together are connected, but section 58 overrides the market value rule. Transfers between them are treated as giving rise to neither a gain nor a loss. The receiving spouse simply takes over the original base cost.
What changed for separating couples from 6 April 2023?
For disposals on or after 6 April 2023, separating couples can transfer assets at no gain, no loss up to the earlier of the end of the third tax year after the tax year in which they stopped living together, or the date the divorce or dissolution is finalised. Transfers made under a formal divorce or separation agreement, or a court order, are at no gain, no loss with no time limit.
Spouses remain connected persons until the final order, even once separated. A transfer that falls outside the no gain, no loss rules before that date is therefore made at market value.
How do I show HMRC the market value I used?
Get a professional valuation at the date of the transfer and keep it with your records. You can also ask HMRC to check your valuation after the disposal using form CG34. It must reach HMRC at least three months before your return filing date, and if HMRC agrees the figure it will not question it in your return. For UK property with a 60 day deadline, you can file using an estimate and amend it later.
What else do people ask about connected persons?
Is a gift to a friend also at market value?
Yes. A friend is not a connected person, but a gift is not a bargain at arm’s length, so section 17 still uses market value. The clogged loss rule would not apply, though.
Are former spouses connected persons?
Not after the final divorce or dissolution order, unless another relationship on the list applies.
What if HMRC opens an enquiry into a family transaction?
Defending a valuation on a family transfer can mean hours of your accountant’s time. Solar Protect tax investigation insurance covers up to £100,000 of accountant’s fees for HMRC enquiries, with no excess. If you are planning a family transfer this year, get a quote before the return goes in.
Related Accountapedia entries
- Clogged losses on disposals to connected persons
- Section 266 election for transfers between connected persons
Reviewed by Matthew Bartlett, Director, Solar Protect. Last reviewed 29 September 2026. This guide is general information, not personalised tax or financial advice. Figures are correct for the 2025/26 and 2026/27 UK tax years at the time of writing.