Capital Gains Tax Liability in Non-Arm’s Length Land Transactions Explained

When a buyer pays the seller’s capital gains tax for LTT

This rule applies to land transfers that are not at arm’s length, including many connected-party deals. If the buyer takes on, pays, or agrees to pay the seller’s capital gains tax, that amount is ignored for Land Transaction Tax only where there is no other chargeable consideration at all. If the buyer gives anything else of value for the property, the capital gains tax element is included as chargeable consideration as well.

• The rule covers non-arm’s length transfers and transactions treated that way because the parties are connected.
• A buyer’s payment or assumption of the seller’s capital gains tax can count for LTT, but only depending on whether anything else is given for the land.
• If the buyer gives nothing except meeting the seller’s capital gains tax liability, that tax payment is not chargeable consideration for LTT.
• If there is any other chargeable consideration, the capital gains tax amount is also brought into the LTT calculation.
• Other chargeable consideration can include taking over debt, such as a mortgage, or paying part of the property’s value in cash.
• In practice, the key step is checking the whole arrangement carefully to see whether the buyer is giving any other value for the property.

Scroll down for the full analysis.

When a buyer pays the seller’s capital gains tax: is it chargeable consideration for LTT?

This page explains a narrow but important LTT rule. It deals with cases where land is transferred other than at arm’s length, including between connected persons, and the buyer takes on the seller’s capital gains tax liability. The key point is that this tax payment is sometimes ignored for LTT, but only if there is no other chargeable consideration for the transfer.

What this rule is about

LTT is normally charged by reference to the chargeable consideration given for a land transaction. In simple terms, that means what the buyer gives in return for the land. Sometimes that is not just cash. It can include taking on liabilities or agreeing to meet costs that would otherwise fall on the seller.

The official material here deals with a specific situation: the buyer becomes liable for, pays, or agrees to pay capital gains tax arising on the seller’s disposal of the property. That can happen in non-arm’s length arrangements, especially where the parties are connected.

The rule in Schedule 4 paragraph 16 is designed to decide whether that CGT element counts as chargeable consideration for LTT.

What the official source says

The source says the rule applies where:

• a land transaction takes place, and
• the property is acquired otherwise than by a bargain made at arm’s length, or is treated by section 18 of the Taxation of Chargeable Gains Act 1992 as acquired in that way because the parties are connected, and
• the buyer becomes liable to pay, does pay, or agrees to pay capital gains tax relating to the corresponding disposal.

If those conditions are met, and there is no other chargeable consideration, the buyer’s assumption or payment of that CGT liability is not chargeable consideration for LTT.

But the source then draws an important distinction. If the transfer does include other chargeable consideration, the CGT liability, agreement to pay it, or actual payment of it will also count as chargeable consideration.

The examples given in the source of other chargeable consideration are:

• the buyer assuming debt, or
• the buyer paying only part of the property’s market value.

What this means in practice

This is an all-or-nothing rule in relation to the CGT payment.

If the buyer’s only contribution is meeting the seller’s CGT liability, that CGT amount is ignored for LTT. On the source wording, it is not chargeable consideration by itself.

However, once there is some other chargeable consideration in the transaction, the position changes. In that case, the CGT element is brought in as chargeable consideration as well.

That matters because parties sometimes assume that a payment of the seller’s tax is always outside the LTT calculation. The source does not support that broad view. It is outside the calculation only where there is no other chargeable consideration at all.

So the practical question is not just “Is the buyer paying the seller’s CGT?” It is also “Is anything else being given for the property that counts as chargeable consideration?” If the answer to the second question is yes, the CGT element is no longer ignored.

How to analyse it

A sensible way to analyse this point is:

• First, identify whether the transfer is not at arm’s length, or is treated that way because the parties are connected under section 18 TCGA 1992.
• Second, ask whether the buyer has become liable for the seller’s CGT, has actually paid it, or has agreed to pay it.
• Third, check whether there is any other chargeable consideration for the land transaction.
• Fourth, if there is no other chargeable consideration, the CGT element is not chargeable consideration under this rule.
• Fifth, if there is other chargeable consideration, include the CGT element as chargeable consideration as well.

In practice, the third step is often the critical one. You need to look carefully at the whole arrangement, not just the headline price. Assumption of secured debt, part-payment, or other value given by the buyer may be enough to mean there is other chargeable consideration.

Example

Illustration: A parent transfers a property to an adult child. The transfer is not at arm’s length. The child agrees to pay the capital gains tax arising on the parent’s disposal, and gives nothing else for the property.

On the source material, if there is no other chargeable consideration, that CGT payment is not chargeable consideration for LTT.

Now change the facts slightly. The child also takes over a mortgage secured on the property, or pays part of the property’s value in cash. In that case there is other chargeable consideration. The source says the CGT liability assumed or paid by the child will then also be chargeable consideration.

Why this can be difficult in practice

The main difficulty is identifying whether there really is no other chargeable consideration. Transactions between family members or connected parties are often informal, and the documents may not clearly set out everything the buyer is giving or taking on.

Another difficulty is that the source refers to acquisitions otherwise than by a bargain at arm’s length, and also to transactions treated that way under the connected persons rule in section 18 TCGA 1992. That means you need to be clear whether the parties are connected, or whether the facts otherwise show a non-arm’s length transaction.

The source also refers readers elsewhere for the meaning of a connected person. That definition matters because it can bring a transaction within the rule even where the parties have documented the transfer as if it were an ordinary sale.

Finally, this rule is specifically about whether the CGT element is chargeable consideration. It does not mean the rest of the LTT analysis can be ignored. You still need to identify any other consideration given and apply the wider LTT rules to that consideration.

Key takeaways

• If the buyer only pays the seller’s CGT in a non-arm’s length or connected-party transfer, that CGT payment is not chargeable consideration under this rule.
• If there is any other chargeable consideration, the CGT element is also brought into chargeable consideration.
• The practical issue is often whether the buyer is giving anything else of value, such as taking on debt or paying part of the property’s value.

This page was last updated on 24 March 2026

Useful article? You may find it helpful to read the original guidance here: Capital Gains Tax Liability in Non-Arm’s Length Land Transactions Explained

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