Taxes Consolidation Act 1997 section 540A

Disposal of certain emissions allowances

Section 540A sets out the capital gains tax treatment of emissions allowances received free of charge under the EU Emissions Trading Scheme.

• Where a permit holder or aircraft operator disposes of an emissions allowance received free of charge from the Environmental Protection Agency, the disposal is treated as a capital gains tax event rather than a disposal of trading stock.
• The same CGT treatment applies where a company disposes of such an allowance acquired through a group transfer, reconstruction or amalgamation, or trade transfer — but only if every prior transfer of that allowance also took place under one of those relieving provisions.
• Because the allowances were acquired at no cost, only incidental costs of disposal may be deducted in computing the chargeable gain, and purchased allowances are deemed to have been disposed of before free allowances.
• The surrender and cancellation of an allowance in compliance with the Directive does not constitute a disposal, and appropriating a free allowance as trading stock does not qualify for the relief in section 596.