Corporation tax—connected persons
Corporation tax—connected persons

The following Tax guidance note provides comprehensive and up to date legal information covering:

  • Corporation tax—connected persons
  • Why is the definition of connected persons important?
  • When is a company connected with another company?
  • When is a company connected with another person?
  • When is an individual connected with another individual?
  • With whom is a trustee of a settlement connected?
  • With whom is a partner in a partnership connected?
  • Definitions

This Practice Note looks at the meaning of connected persons within sections 1122 and 1123 of the Corporation Tax Act 2010 (CTA 2010). An almost identical definition for income tax purposes is contained within section 993 of the Income Tax Act 2007 (ITA 2007).

CTA 2010, ss 1122 and 1123 set out:

  1. when a company is connected with another company

  2. when a company is connected with another person

  3. when an individual is connected with another individual

  4. with whom a trustee of a settlement is connected, and

  5. with whom a partner in a partnership is connected

Why is the definition of connected persons important?

The term ‘connected persons’ is applied in various corporation tax and other tax provisions including:

  1. throughout the Corporation Tax Acts (although a modified definition applies for specific parts)

  2. for stamp duty land tax (SDLT)  purposes, and

  3. in relation to the market value rule applicable for stamp duty and stamp duty reserve tax (SDRT) purposes

It is most commonly used to ensure that transactions between connected persons are charged to tax by reference to the market value of the transaction, rather than the consideration that passes. The concept is also used to restrict losses and to avoid tax payers taking advantage of timing mismatches.

For SDLT purposes, the definition is used to determine whether a buyer is connected to the seller of