Taxes Consolidation Act 1997 Schedule 16 paragraph 2

Financial assets

Paragraph 2 deals with the tax treatment of financial assets held by a building society when it converts into a successor company, ensuring that unrealised profits on trading stock are not taxed at the point of conversion and that the successor company inherits the society's original cost base.

• Financial trading stock (financial assets that would constitute trading stock for the purposes of section 89) must be valued at its cost to the society, preventing any tax charge on unrealised gains at the time of conversion.
• The vesting of financial assets in the successor company on conversion is not treated as a disposal by the society for corporation tax purposes, so no tax liability arises on the transfer itself.
• When the successor company later disposes of inherited financial assets, the profit or gain is calculated by reference to the original cost of those assets to the building society.
• The effect is that tax is deferred rather than eliminated: the successor company steps into the society's shoes and will be taxed on the full gain when the assets are eventually sold.