A property deal is termed as being made at ‘arm’s length’ if it is a normal commercial transaction between two or more persons. A transaction not likely to be at arm’s length is one undertaken by persons related by blood, adoption or marriage, or who are living together.
HMRC requires a valuation of property if the transaction has not been made at ‘arm’s length’. The valuation will determine the market value and that is the figure that will be used as the proceeds amount in the CGT calculation on sale or other disposal.
Example:
Anton needed to sell his property quickly so that he could move abroad. Tony was aware that Anton needed a quick sale and therefore offered him a low price. No-one else made an offer. Anton accepted the offer.
This was not the best possible price that Anton could have achieved if he had left the property on the market for longer but he was trying to achieve the best deal possible. This is a bad bargain rather than being a bargain not made at arm’s length and therefore the proceeds received will be used in any CGT calculation.
If Anton and Tony had been related (i.e. ‘connected persons’) HMRC would require a market valuation.
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