Income Tax (Trading and Other Income) Act 2005 section 177

Sale basis of valuation: sale to connected person

Section 177 sets out how trading stock must be valued when it is sold to a person who is connected with the seller, ensuring the transaction is treated as if it took place at arm's length.

• When trading stock is sold to a connected person who carries on (or intends to carry on) a trade, profession or vocation in the UK, and who can deduct the cost of the stock as an expense for income or corporation tax purposes, special valuation rules apply.
• The stock must be valued at the amount that would have been realised if the sale had taken place between independent parties dealing at arm's length.
• This arm's length price is not necessarily the same as open market value — it reflects the actual circumstances of the seller, including any imperfect information they may have.
• These rules do not apply if the buyer and seller jointly make an election under section 178, which allows connected persons to agree on a different basis of valuation.