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Connected Persons For Tax Purposes

Connected persons for tax purposes
hmrc

Figuring out who are considered “connected persons” for tax purposes can be a little bit tricky. This special term shows up in the Capital Gains Tax (CGT) rules and has a specific meaning that we need to explore.

What Is A Connected Person for Tax Purposes?

In a law called the Taxation of Chargeable Gains Act (TCGA) 1992, they explain what a connected person is. It basically means “someone who is related to you in a particular way.” The law says that a person is connected to you if they are your husband, wife, or civil partner. It also includes your close family members like brothers, sisters, parents, and children. Plus, it covers the husbands, wives, or civil partners of those family members.

Now, here’s the interesting part: The word “relative” is used to describe these family members, but not everyone in the family is included. For example, cousins, aunts, uncles, nephews, and nieces are not considered connected persons under this rule.

Special Cases

There are some special cases to think about too. The tax folks, known as Her Majesty’s Revenue and Customs (HMRC), have some extra rules. If your partner passed away or you got divorced, certain people might not count as connected persons anymore. This depends on how you’re connected to them and whether there’s a different way to show you’re still connected without involving the person who passed away.

It’s also important to know that when a civil partnership ends or a marriage is dissolved, this can change who counts as connected persons for tax purposes. It’s not just about the partners themselves, but also others who might have been considered connected before.

Understanding who counts as a person who is connected to someone is a big deal. It affects things like how much tax you might need to pay when you sell something for more than you bought it for (that’s what CGT is all about). If you get this wrong, you might end up paying more or less tax than you should, and nobody wants that.

The Whole Idea

This whole idea of connected persons also shows how families and relationships can affect taxes. It’s not always simple to put these relationships into clear rules because families can be different from one another. The rules have to try and fit everyone, which is why some family members are included while others are left out.

In a nutshell, connected persons for tax purposes means someone related to you in a specific way, like your spouse, close family members, or their partners. Cousins and distant relatives don’t count. There are special cases if someone passes away or you get divorced. It’s important to get this right to make sure your taxes are fair and accurate. This rule reminds us that families are diverse, and tax rules have to consider all the different ways people are connected.

Source:HM Revenue & Customs| 17-07-2023