Market Value Rules for Capital Gains Tax

Introduction

When you give away an asset, sell it to family, or dispose of it in certain other ways, HMRC often ignores the actual amount you received and calculates your Capital Gains Tax using the asset's market value instead. Understanding when and why this happens is essential to avoid unexpected tax bills and correctly report your gains.

What does "market value" mean?

Market value is the price an asset would reasonably fetch if you sold it on the open market to an unconnected buyer. It's what a willing buyer would pay a willing seller in a normal commercial transaction, where both parties have full knowledge of the asset and neither is under pressure to buy or sell.

HMRC uses market value in place of the actual sale proceeds (or lack of proceeds) in specific situations, even if you received less than this amount or nothing at all.

When HMRC uses market value instead of actual proceeds

Gifts

When you give an asset away as a gift, there's no sale price to use for your Capital Gains Tax calculation. HMRC treats you as having disposed of the asset at its market value at the time of the gift.

This means you may have a taxable gain even though you received no money. For example, if you bought shares for £10,000 and later gift them to your adult child when they're worth £30,000, HMRC calculates your gain as £20,000 (£30,000 market value minus £10,000 original cost), even though you received nothing.

Important exception: You do not pay Capital Gains Tax on gifts to your spouse or civil partner (provided you live together during that tax year), or on gifts to charity. These transfers are tax-free, though your spouse may face Capital Gains Tax if they later sell the asset.

Sales to connected persons

When you sell an asset to someone you're connected with for less than its market value, HMRC uses the market value to calculate your gain, not the amount you actually received.

Connected persons include:

• Your spouse or civil partner (if you're separated and living apart)
• Your relatives and their spouses
• Your business partners and their spouses and relatives
• Companies you control

This rule prevents people from avoiding Capital Gains Tax by selling valuable assets to family members at artificially low prices.

Selling to charity below market value

If you sell an asset to a charity for more than you originally paid but less than its current market value, you must use the actual amount the charity pays you (not the market value) to calculate your gain. This can work in your favour, as it may reduce your taxable gain.

However, you still cannot claim the difference between market value and the sale price as a loss.

Swaps and exchanges

When you swap an asset for something else (rather than selling for cash), HMRC uses the market value of what you receive to calculate your gain. This treats the exchange as a disposal at market value.

Assets acquired before April 1982

If you inherited or acquired an asset before April 1982 and later dispose of it, you use the market value on 31 March 1982 as the base cost, rather than what was originally paid for it.

How to determine market value

HMRC expects you to make a reasonable estimate of market value based on:

• Recent sales of similar assets
• Professional valuations (for property, land, or valuable items)
• Share prices on the date of disposal (for listed shares)
• Expert opinions for unique or specialist assets

For valuable assets such as property, antiques, or significant shareholdings, you should obtain a professional valuation. Keep documentation to support your market value figure in case HMRC queries it.

If you disagree with HMRC's view of market value, you can negotiate or appeal, but you'll need evidence to support your position.

Calculating your gain using market value

The calculation follows the standard Capital Gains Tax formula:

Market value at disposal minus original cost (or market value when acquired) minus allowable costs = gain

Allowable costs include purchase costs, improvement costs (but not maintenance), and professional fees for valuation or sale.

Once you've calculated your gain, deduct any allowable losses from other disposals in the same tax year, then deduct your annual tax-free allowance (£3,000 for 2025/26).

Record keeping

When market value applies, keep detailed records including:

• Evidence of the original purchase price or acquisition value
• Professional valuations obtained at the time of disposal
• Documentation showing the relationship between parties (for connected person sales)
• Records of any improvements or allowable costs
• Details of the date of disposal and the circumstances

You must keep these records even if your gain is below the annual allowance, as HMRC can ask for them if you need to report the disposal.

Reporting requirements

You must report disposals where market value is used if your total gains (before deducting the annual allowance) exceed your £3,000 allowance for 2025/26, or if the total proceeds from all disposals in the year exceed £50,000.

For UK residential property disposals, you must report and pay any Capital Gains Tax within 60 days of completion, even if the disposal was a gift where no money changed hands.

Sources

• Capital Gains Tax: what you pay it on, rates and allowances

This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.