642 Transfers of interests in land between certain associated persons

Summary

This section is designed to prevent a person chargeable on profits from dealing in land from avoiding liability by buying land at an artificially high price, or selling it at an artificially low price, in cases where the transferor and the transferee are connected persons.

Details

(1) In a case in which the person carrying on the trade of dealing in or developing land is the purchaser and in which the seller of the land does not carry on any such trade, the price paid by the purchaser will be a capital sum in the seller’s hands and not taxable as income. Where in such a case the parties are connected persons (see section 10) and the price paid is pitched at an artificially high level, the subsection provides that for tax purposes the price is to be deemed to be, not the artificially inflated price, but rather the market value.

(2) In a case where the person carrying on the trade of dealing in or developing land is the seller and the purchaser, who is a connected person (see section 10), does not carry on a trade of this kind, the price the purchaser pays will not affect the purchaser’s tax liability since the purchaser is not dealing in land. Tax might therefore be avoided if the seller and the purchaser arranged that the property should pass at an artificially low price. This is prevented by securing that the price is to be deemed to be the market value instead of the artificially low figure. A disposal of property by way of gift is brought within the scope of this rule. In the absence of such a provision, a gift might not be caught by the rule because no “price” was involved.

(3) In the application of the section to a case in which a lease is granted, “price” is to be taken to include the fine or premium required by the lease.

Relevant Date: Finance Act 2021