Taxation of Chargeable Gains Act 1992 section 18

Transactions between connected persons

Section 18 sets out the capital gains tax rules that apply when an asset is disposed of between connected persons, including how losses are restricted, how market value is determined where rights or restrictions attach to the asset, and how companies may claim relief for "clogged" losses.

• Disposals between connected persons are automatically treated as taking place at market value, regardless of the actual price paid, because the parties are deemed not to be dealing at arm's length.
• Any capital loss arising on a disposal to a connected person is "clogged" — it can only be set against gains on other disposals made to that same connected person while the connection still exists.
• Where the asset is subject to a right or restriction enforceable by the disposer or a connected person, the market value used for the transaction is adjusted downward, unless the right or restriction would effectively destroy the asset's value without benefiting the disposer.
• Companies with clogged losses may make a claim in their tax return to convert those losses into generally usable allowable losses, but only up to the amount of allowable losses actually accruing in the same accounting period.