HMRC expands guidance on section 29 value-shifting triggers

Without special rules, value could be moved from one holding or interest into another — across shares or interests in land — with no disposal for capital gains purposes. Section 29 of the Taxation of Chargeable Gains Act 1992 (TCGA92/S29) counters that avoidanceGOV, and expanded HMRC manual guidance now sets out the three situations in which it operates, how the resulting liability is measured, and how the deemed disposal interacts with reliefs and the spouse exemptionGOV.

Section 29 operates in three situations. First, where a person or persons controlling a company use that control so that value or valuable rights pass out of shares they own — or shares owned by persons connected with them — into other shares in, or rights over, the companyGOV. Second, where the owner of land or any other property sells it, becomes lessee, and subsequent arrangements are generally favourable to the lessorGOV. Third, where rights or restrictions over any asset are reduced or removed by the person entitled to enforce themGOV. Connected-person transactions — transfers of value from parents to children, or between associated companies — are where these rules are most commonly encountered.

Where one of those situations arises, the value-shifting rules deem a disposal or part-disposal by the person transferring value, with a corresponding acquisition by the person or persons receiving itGOV. The market value rule in TCGA92/S17 then measures the transferor's liability: Capital Gains Tax falls on the amount the transferor could have obtained for the transfer at arm's lengthGOV. Anything actually received for the transfer is added to any further amount that could have been obtained, so liability attaches to the full value transferred.

The normal capital gains rules apply to the deemed disposal. Gift of business assets relief under TCGA92/S165 may be given against gains where its conditions are satisfiedGOV. By contrast, a transfer of value between spouses or between civil partners gives rise to no gain under TCGA92/S58GOV. For deeper treatment, the shares and company-rights situation is developed with examples in the CG58850+ guidance, while the land-centred second and third situations are taken further at CG72000+.

For advisers, the practical points are the trigger, the measure and the relief position. Any arrangement that shifts value out of one holding into another without a commercial disposal — controller-led movements between shareholdings, sale-and-leaseback structures favouring the lessor, or releases of enforceable rights — can create a deemed disposal taxed at full arm's-length value, with gift of business assets relief or the spouse exemption available where their conditions are metGOV. Legal basis: TCGA92/S29 (value shifting; subsections (2), (4) and (5)), TCGA92/S17 (market value rule), TCGA92/S165 (gift of business assets relief) and TCGA92/S58 (spouse/civil partner exemption).