What is a Connected Person for Tax Purposes?
The definition of a connected person for tax purposes can be complex and varies depending on the circumstances.
A statutory definition of “connected persons” for tax purposes is set out in Section 839 of the Income and Corporation Taxes Act (ICTA) 1988.
The general situation in Section 839(2) of ICTA 1988 states:
“A person is connected with an individual if that person is the individual’s wife or husband, or is a relative, or the wife or husband of a relative, of the individual or of the individual’s wife or husband.”
Section 839(8) of ICTA 1988 states that, in this context, “‘relative’ means brother, sister, ancestor or lineal descendant.” Married partners are connected with each other.
The term ‘relative’ does not cover all family relationships. In particular it does not include nephews, nieces, uncles and aunts.
However, the definition of connected persons is extended for Inheritance Tax to include the individual’s uncle/aunt, nephew/nieces and their spouse, spouse’s uncle/aunt and spouse’s nephew and niece.
There are further categories of connected persons in respect of trustees, acquisitions and disposals of partnership assets and in relation to companies.