Taxes Consolidation Act 1997 Schedule 25A paragraph 8

Appropriations to trading stock

Paragraph 8 deals with the capital gains tax treatment when a company appropriates an asset, particularly shares, to trading stock, and any resulting gain would have been exempt under the participation exemption in section 626B.

• Where a company appropriates a non-trading asset to trading stock, it is treated as having disposed of the asset at market value for capital gains tax purposes, crystallising any latent gain.
• If the gain that would have arisen on a deemed disposal is one that would have been exempt under section 626B (the participation exemption for share disposals), the company is treated as having acquired the shares at market value for the purposes of computing trading profits.
• This ensures the trading stock base cost reflects market value at the date of appropriation, so that only subsequent movements in value are brought into the trading profit computation.
• The intra-group transfer rules in section 618, which allow assets to pass between group companies on a no gain/no loss basis, apply to these appropriations in the same way as they apply to general appropriations to and from trading stock under section 596.