---
title: "UK Connected Persons Rules: Tax Guide for 2026"
description: "Advising a client on a transaction between family members or group companies requires a firm grasp of the \"Connected Persons Rules\". These rules are a cornerstone of UK tax legislation, designed to ensure that transactions between related parties are subject…"
url: "https://www.accountingfirms.co.uk/knowledge-bank/uk-connected-persons-rules/"
updated: "2026-08-12"
category: Limited Company Tax
---

# UK Connected Persons Rules: Tax Guide for 2026

Advising a client on a transaction between family members or group companies requires a firm grasp of the "Connected Persons Rules". These rules are a cornerstone of UK tax legislation, designed to ensure that transactions between related parties are subject to appropriate scrutiny and, often, specific tax treatment. This guide breaks down the legislative framework, the key concept of "control", and the practical implications for various taxes.

## The Legislative Framework: Who is Connected?

The primary definitions of "connected persons" are found in section 286 of the Taxation of Chargeable Gains Act 1992 (TCGA 1992) and section 1122 of the [Corporation Tax](https://www.accountingfirms.co.uk/blog/how-to-do-accounting-for-ecommerce-business/) Act 2010 (CTA 2010). While the wording is similar, you must always refer to the specific Act relevant to the tax in question.

The rules establish connections in four main categories: individuals, companies, partners, and trustees.

### **1. Connection Between Individuals**

An individual is connected with their relatives and their relatives' spouses or civil partners. The term "relative" is defined narrowly.

| **Connected to an Individual** | **Legislative Basis** |
| --- | --- |
| Spouse or civil partner. | TCGA 1992, s 286(2); CTA 2010, s 1122(5)(a). |
| Relatives (brother, sister, ancestor, or lineal descendant). | TCGA 1992, s 286(8); CTA 2010, s 1122(5)(b). |
| The spouse or civil partner of a relative. | TCGA 1992, s 286(2); CTA 2010, s 1122(5)(c). |
| A relative of the individual's spouse or civil partner. | TCGA 1992, s 286(2); CTA 2010, s 1122(5)(d). |

It is important to note that nephews, nieces, uncles, and aunts are not considered "relatives" for these purposes.

### **2. Connection Involving Companies**

The connection test for companies hinges on the concept of "control". A company is connected with another person if that person, either alone or with other connected persons, has control of it.

Two companies are connected if:

- The same person controls both companies.
- A person controls one company, and people connected with them (or they and people connected with them) control the other.
- A group of two or more people controls both companies, and the groups consist of the same people (or could be regarded as the same by substituting a member with a person connected to them).

Furthermore, any two or more people acting together to secure or exercise control of a company are treated as connected with one another.

### **3. Connection Involving Partnerships**

A person is connected with anyone with whom they are in partnership, and with the spouse, civil partner, or relative of any individual partner. This rule does not apply to acquisitions or disposals of partnership assets made under "bona fide commercial arrangements".

### **4. Connection Involving Trusts and Settlements**

A trustee of a settlement is connected with:

- Any individual who is a settlor in relation to the settlement.
- Any person who is connected with the settlor.
- Any close company (or non-UK equivalent) where the participants include the trustees.
- A body corporate controlled by such a close company.

## Defining "Control": The Linchpin for Companies

The concept of "control" is fundamental to the connected persons' rules for companies. The primary definition is found in section 1124 of CTA 2010 and section 574 of the [Capital Allowances](https://www.accountingfirms.co.uk/blog/impact-of-tax-planning-on-business-growth/) Act 2001.

A person (P) is deemed to have control over a company if they possess the power to ensure the company's affairs are conducted in accordance with their wishes. This power can be exercised through:

- Holding shares or possessing voting power in that company or any other body corporate.
- Powers conferred by the articles of association or any other regulating document.

The definition is broad and can apply where more than one person or group of persons simultaneously has control. HMRC also considers control over a company’s income or assets as a potential test.

### Practical Implications of Being Connected

Identifying a connection between parties is critical because it triggers specific tax consequences. These rules are designed to prevent [tax avoidance](https://www.accountingfirms.co.uk/blog/the-king-spoke/) by ensuring transactions reflect market value.

- **Capital Gains Tax:** For [CGT purposes](https://www.accountingfirms.co.uk/blog/going-going-almost-gone-what-is-left-of-badr/), any disposal between connected persons is treated as being made for a consideration equal to the market value of the asset, regardless of the actual price paid.
- **Transfer Pricing:** Transactions between connected persons may fall under transfer pricing rules, requiring adjustments to [taxable profits](https://www.accountingfirms.co.uk/blog/making-tax-digital-for-landlords/) to reflect arm's-length pricing.
- **Capital Allowances:** There are special provisions for capital allowance claims on assets transferred between connected persons.
- **Loan Relationships:** Historically, and under current rules, the connection between parties can restrict relief for bad debts and postpone debits for interest until it is paid.
- **Anti-Avoidance:** The Finance Act 2026 introduced specific connected persons rules for anti-avoidance purposes. A person is connected if HMRC reasonably suspects they are contravening an anti-avoidance enactment, connected to someone contravening such an enactment, or connected to the arrangements themselves. HMRC officers may issue information notices to such connected persons to monitor compliance.

### Conclusion

The Connected Persons Rules are wide-ranging and apply across the UK [tax landscape](https://www.accountingfirms.co.uk/blog/time-to-disincorporate/). Correctly identifying whether parties to a transaction are connected is a vital first step in providing accurate advice. The determination rests on a detailed analysis of the relationships between the parties, with a particular focus on the multifaceted definition of "control" when companies are involved.

*You may find further detailed guidance in HMRC's [Capital Gains Manual](https://www.accountingfirms.co.uk/blog/all-is-not-lost/) at CG14580 and the Corporation Tax Act 2010 at section 1122.*

## Official references

1. [Taxation of Chargeable Gains Act 1992, s 286](https://www.legislation.gov.uk/ukpga/1992/12/section/286)
2. [Corporation Tax Act 2010, s 1122](https://www.legislation.gov.uk/ukpga/2010/4/section/1122)
3. [Corporation Tax Act 2009, s 843](https://www.legislation.gov.uk/ukpga/2009/4/section/843)
4. [Opting to tax land and buildings (VAT Notice 742A) at 65](https://www.gov.uk/guidance/opting-to-tax-land-and-buildings-notice-742a#:~:text=deemed%20to%20be%20responsible%20for,or%20more%20cases)%20a%20member&text=deemed%20to%20be%20responsible%20for,treating%20(in%20one&text=providing%20fi%20nance%2C,or%20more%20cases)%20a%20member&text=providing%20fi%20nance%2C,treating%20(in%20one)
5. [Capital Gains Manual - CG14580 - Connected persons at 1](https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg14580#:~:text=Capital%20Gains%20Manual%20CG14580%20%2D,can%20be%20established%20by%20a&text=Capital%20Gains%20Manual%20CG14580%20%2D,partner%20unless%20connection&text=Connected%20persons%20TCGA92%2FS286,can%20be%20established%20by%20a&text=Connected%20persons%20TCGA92%2FS286,partner%20unless%20connection)