D1.919 Transfers by close companies at undervalue
Where a close company1 transfers an asset to any person other than by way of a bargain at arm's length2 (so that the consideration would in the normal case be market value3), and the consideration for the transfer is less than market value, the amount of the undervalue is apportioned among all the holders of shares in the company as at that date4.
On a subsequent sale by a shareholder of shares in the company, the deduction allowed5 in respect of the cost of the acquisition of the shares is reduced by the amount so apportioned. Thus if £50 were apportioned to the shareholder's holding at the time, and the shares were acquired for £1,000, the shareholder is to be treated as having paid £50 less, ie £950 instead of £1,000 for the shares, so that the actual gain on the sale of the shares would be increased by £506.
Where the shares
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