Taxes Consolidation Act 1997 section 596

Appropriations to and from stock in trade

Section 596 deals with the capital gains tax consequences when assets are appropriated to or from trading stock, including an election to defer a chargeable gain into the trading profits computation.

• When a non-trading asset is appropriated into trading stock, it is treated as disposed of at market value for CGT purposes, triggering any chargeable gain or allowable loss.
• When a trading stock asset is appropriated out of the trade or retained on cessation, its CGT acquisition cost is the amount brought into the trade accounts for income tax purposes (i.e. its book value).
• An income tax trader may elect to reduce the market value of the asset brought into stock by the amount of the chargeable gain, effectively converting the capital gain into a trading profit — but this election cannot be used where an allowable loss would arise.
• Where the trade is carried on in partnership, the election must be agreed by all partners.