IHTM04166 - Dispositions not intended to confer bounty: second condition - arm's length transaction

In addition to satisfying the condition at IHTM04165 the parties have to show that the disposition (IHTM04164) either

  • was made in a transaction at arm鈥檚 length (IHTM04164) between persons not connected with each other, or
  • was such as might be expected to be made in a transaction at arm鈥檚 length between persons not connected (IHTM04164) with each other.

The test at a. is a factual issue. If the bargaining parties are unconnected and at arm鈥檚 length and there was no intention to confer bounty, then on the face of it the disposition is not a transfer of value. (IHTM04024) If the parties are connected or are not at arm鈥檚 length, or both, you have to apply the test at b.

This is concerned with whether the disposition is one which is likely to have taken place objectively between unconnected persons dealing with each other at arm鈥檚 length. The application of the test at b. (in FA75/S20 (4), from which IHTA84/S10 is derived) was considered by the Court of Session (Inner House) in IRC v Spencer-Nairn [1991] STC 60.