Why the price your family pays is ignored for tax, who counts as family in the eyes of the law, and the one relationship where the rule disappears.
Zazentax Connected Persons Series, Part 1 of 3 · Updated July 2026 · Reading time: about 6 minutes
It sounds like the perfect plan. You own a property, your daughter needs a home, so you sell it to her for a pound, or for whatever she can afford. No profit changes hands, so surely no tax arises. This question appears constantly in family conversations and online forums, and the answer surprises almost everyone who asks it.
For Capital Gains Tax, usually shortened to CGT, the tax charged when you dispose of an asset for more than it cost you, the price paid by a family member is simply ignored. The law substitutes the market value of the asset on the day of the transfer, and your tax is calculated as if you had received that full value in cash. Before proceeding to the numbers, it is worth being precise about who this rule catches, because the legal definition of family is both wider and narrower than most people expect.
Who Counts as Connected
The rule applies to transactions between connected persons, a specific list defined in tax law. You are connected with your spouse or civil partner, your parents and grandparents, your children and grandchildren, and your brothers and sisters. The net then widens in two directions: you are also connected with the same relatives of your spouse, for instance your mother-in-law or your spouse’s sister, and with the spouses of your own relatives, such as a son-in-law or a stepfather. Beyond the family, you are connected with your business partners and their close relatives, and with any company you control, meaning one where you hold more than half the voting power.
The omissions matter just as much. Aunts, uncles, nieces, nephews and cousins are not connected persons for this purpose, and neither are friends, however close. A genuine sale to your nephew at an honest price is therefore taxed on the actual price, whereas the identical sale to your son is taxed on market value regardless of the price.
Key point: A deliberate gift to anyone, related or not, is always treated as a disposal at market value. The connected persons rule goes further: within the list above, market value is imposed even when real money changes hands and even when nobody intended any generosity.
What the Rule Does to the Seller, and to the Buyer
Consider Tomas. He bought a flat years ago for £140,000 and it is now worth £260,000. He sells it to his daughter for £150,000, a genuine payment she raised through a mortgage. For CGT the £150,000 is disregarded. His deemed proceeds are £260,000, his gain is £260,000 minus £140,000, which equals £120,000, and he is taxed on that gain despite never receiving £110,000 of it.
The scale of the resulting bill deserves attention. For 2026/27 each person has an annual exempt amount of £3,000, the slice of gains that is tax free each year. As a higher rate taxpayer, Tomas pays CGT on residential property at 24%. His taxable gain is £120,000 minus £3,000, which leaves £117,000, and the tax is £117,000 multiplied by 24%, which equals £28,080. Furthermore, because the property is residential, he must report the disposal and pay the tax within 60 days of completion, through HMRC’s online property service (HMRC being His Majesty’s Revenue and Customs, the United Kingdom tax authority). Missing that window triggers an automatic £100 penalty, with further penalties and interest as the delay grows.
There is, however, a genuine consolation on the other side of the transaction. The daughter’s base cost for any future sale becomes the full market value of £260,000, not the £150,000 she paid. The family as a whole is not taxed twice on the same growth; the rule simply refuses to let the taxing point be manipulated by the price tag.
The Spouse Exception: The Rule That Disappears
One relationship escapes all of this. Transfers between spouses or civil partners who are living together take place at no gain and no loss, whatever the asset and whatever the price. Suppose Ana gives her husband shares that cost her £20,000 and are now worth £55,000. No gain arises for Ana at all. Instead, her husband takes over her original £20,000 cost, and the £35,000 of growth is taxed only if and when he eventually sells to the outside world.
Consequently, couples can legitimately move assets between themselves before a sale, for instance to use both annual exempt amounts of £3,000 or a partner’s lower tax band. This is standard, accepted planning. The same move attempted with a child produces the exact opposite result: an immediate market value disposal with tax to pay.
Action required: Before transferring any valuable asset within the family, obtain a realistic market valuation and calculate the CGT first. The tax falls on the giver, is based on a value they may never receive in cash, and for residential property it is due within 60 days.
Key Takeaways
- Sales and gifts to connected persons are taxed at market value; the actual price, even £1, is ignored.
- Connected persons include your spouse or civil partner, parents, grandparents, children, grandchildren and siblings, plus their spouses and your spouse’s equivalent relatives, your business partners, and companies you control.
- Aunts, uncles, nieces, nephews, cousins and friends are not on the list; deals with them are taxed on the real price if genuinely negotiated.
- The recipient’s future base cost is the market value, so the growth is not taxed twice across the family.
- Spouse and civil partner transfers are the exception, passing at no gain and no loss; and for residential property, remember the 60 day reporting and payment deadline, the £3,000 annual exempt amount and the 18% or 24% rates.
Planning to Pass Property or Shares to Family?
One conversation before the transfer is worth far more than any fix after it. Zazentax can value the position, calculate the tax on both routes, and time the transfer so the family keeps the most of what it built.
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