Breaking Down Connected Persons for UK Capital Gains Tax
When it comes to Capital Gains Tax (CGT) in the UK, understanding the concept of “connected persons” is essential. However, navigating the statutory definition set out in Section 286 of the Taxation of Chargeable Gains Act (TCGA) 1992 can be complex.
In this article, we’ll provide a clear and comprehensive guide to connected persons for CGT purposes, including insights from HMRC’s internal guidance. If you’re a taxpayer or an investor, it’s crucial to grasp this concept to ensure compliance with the tax regulations and make informed financial decisions.
What are Connected Persons for Capital Gains Tax?
According to Section 286 of the TCGA 1992, a person is considered connected with an individual for CGT purposes if they fall under any of the following categories:
Spouse or Civil Partner: Any person who is legally married to the individual or in a registered civil partnership with them is automatically considered connected.
Relatives: Connection also extends to relatives, including brothers, sisters, ancestors (parents, grandparents, etc.), or lineal descendants (children, grandchildren, etc.) and their respective spouses or civil partners.
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Notable Exceptions for connected persons
It’s important to note that the term “relative” does not encompass all family relationships. Specifically, nephews, nieces, uncles, and aunts are not considered connected persons for CGT purposes.
Furthermore, there are certain scenarios where individuals are excluded from being connected persons, as outlined in HMRC’s internal guidance:
Widows/Widowers and Surviving Civil Partners: Unless a connection can be established by means not involving the deceased spouse or civil partner, widows, widowers, and surviving civil partners of deceased persons are not considered connected for CGT.
Dissolution of Civil Partnership or Divorce: Following the dissolution of a civil partnership or a divorce, individuals in addition to the former civil partner or spouse may cease to be connected for CGT purposes.
Need Assistance from an Accountant?
Being aware of who is considered a connected person can impact various transactions, such as property transfers, gifts, or sales, and may result in different tax treatment. To ensure compliance with the tax regulations and make informed financial decisions, seeking guidance from a reputable UK accounting firm with expertise in CGT matters is highly recommended.
If you require professional assistance with understanding connected persons or any other tax-related queries, our team of experienced accountants at CIGMA Accounting is here to help. Contact us today for expert advice tailored to your specific needs.