Budget 2017 - Appropriations to trading stock

Published: Wednesday 8 March 2017

Today’s Budget saw the introduction of a measure to alter the way in which companies are taxed when fixed assets are taken into trading stock. Until today the appropriation of a capital asset to trading stock was treated as taking place at market value meaning a chargeable gain or an allowable loss could arise. To counter the problem of tax becoming payable on an asset that might not have been sold, an election could be made which had the effect of reducing the chargeable gain or allowable loss to zero, and rebasing the asset for subsequent calculation of trading profits.

The changes introduced today will mean that the legislation will only permit this election to be made where the appropriation into trading stock gives rise to a chargeable gain and not where it gives rise to an allowable loss. Previously it was possible to effectively convert capital losses, that can only be used against chargeable gains, into more flexible trading losses. This measure, whilst in a less travelled area of corporation tax legislation, is indicative of the Treasury’s continuing efforts to block what is perceived as tax avoidance.