S2. Non-business asset change of use

CAPITAL GAINS TAX

Deemed disposal

- If:

(1) An asset is acquired by a person otherwise than as trading stock of a trade;

(2) The asset is appropriate by T for the purposes of the trade as trading stock.

(3) If T had sold the asset for market value, a chargeable gain or allowable loss would have accrued.

Then: T is treated as disposing of the asset for market value consideration (s.161).

Election (only if gain, not if loss)

- T may elect for a no-gain/no-loss consideration if (s.161(3)):

(1) The deemed calculation produces a gain (no election if it produces a loss) +

(2) T is chargeable to income tax/corporation tax on the profits of the trade +

(3) the trade is carried on wholly or partly in the UK.

- The same figure is used for calculating profits of the trade.

- Re procedure for making election s.161(3A), (4).

- Partners must all concur in the election.

Legislation: TCGA s.161;

Cases:

HMRC manuals:

Commentary:

- Goods acquired prior to commencement of the trade cannot be trading stock.

- When the trade commences, they must be appropriate to the trading stock, giving a deemed disposal, subject to the election.

- S.161(1) expressly refers to "on the commencement of the trade or otherwise".

- This can cause problems if the trading stock goes down in value (because no election can be made).

- There will be a CGT loss and corresponding higher trading profit.

Legislation:

Cases:

HMRC manuals:

Commentary: