Taxation of Chargeable Gains Act 1992, section 161

Appropriations to and from stock

Part V Transfer of business assets , business asset disposal relief and investors' relief

(1)Subject to [F1101subsection (3)F1101] below, where an asset acquired by a person otherwise than as trading stock of a trade carried on by him is appropriated by him for the purposes of the trade as trading stock (whether on the commencement of the trade or otherwise) and, if he had then sold the asset for its market value, a chargeable gain or allowable loss would have accrued to him, he shall be treated as having thereby disposed of the asset by selling it for its then market value.

(2)If at any time an asset forming part of the trading stock of a person’s trade is appropriated by him for any other purpose, or is retained by him on his ceasing to carry on the trade, he shall be treated as having acquired it at that time for a consideration equal to the amount brought into the accounts of the trade in respect of it for tax purposes on the appropriation or on his ceasing to carry on the trade, as the case may be.

(3)Subject to subsection (4) below, subsection (1) above shall not apply in relation to [F1102a case where a chargeable gain would have accrued to a person on the appropriation of an asset for the purposes of a trade as mentioned in that subsectionF1102][F1103 if—

(a)he is chargeable to corporation tax in respect of the profits of the trade [F1104 under Chapter 2 of Part 3 of CTA 2009 and the trade is carried on wholly or partly in the United KingdomF1104] , or

(b)he is chargeable to income tax in respect of the profits of the trade under Chapter 2 of Part 2 of ITTOIA 2005 and the trade is carried on wholly or partly in the United Kingdom,

and he electsF1103] that instead the market value of the asset at the time of the appropriation shall, in computing the profits of the trade for purposes of tax, be treated as reduced by the amount of [F1105that chargeable gain, and where subsection (1)F1105] does not apply by reason of such an election, the profits of the trade shall be computed accordingly.

F1106 (3ZA). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F1107 (3ZB). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

[F1108 (3A)An election under subsection (3) F1109... above shall be made—

(a)for the purposes of capital gains tax, on or before the first anniversary of the 31st January next following the year of assessment in which ends the period of account in which the asset is appropriated for the purposes of the trade as trading stock;

(b)for the purposes of corporation tax, within 2 years after the end of the accounting period in which the asset is appropriated for the purposes of the trade as trading stock;

F1110 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F1108]

(4)If a person making an election under subsection (3) [F1111or (3ZA)F1111] is at the time of the appropriation carrying on the trade in partnership with others, the election shall not have effect unless concurred in by the others.

[F1112 (5)If—

[F1113 (a)any person is charged to income tax by virtue of sections 517B and 517C of ITA 2007 (certain profits or gains on a disposal of land treated as trading profits) on the realisation of a profit or gain because the condition in section 517B(7) of that Act is met, andF1113]

(b)the gain is calculated on the basis that any property was appropriated as trading stock,

the property shall be treated on that basis also for the purposes of this section.F1112]

[F1114 (6)If—

[F1115 (a)any person is charged to corporation tax by virtue of sections 356OB and 356OC of CTA 2010 (certain profits or gains on a disposal of land treated as trading profits) on the realisation of a profit or gain because the condition in section 356OB(7) of that Act is met, andF1115]

(b)the gain is calculated on the basis that any property was appropriated as trading stock,

the property shall be treated on that basis also for the purposes of this section.F1114]

Definitions used in section 161 16

assets

(a) the reference to “assets” were a reference to “property”, and

Defined in Sch.4ZA para.22(2) · see it in the full Act
asset

In this sub-paragraph “asset” includes part of an asset.

Defined in Sch.8B para.6(1) · see it in the full Act
trading stock

“trading stock” has the meaning given by section 163 of CTA 2009 ;

Defined in s.288(1) · see it in the full Act
trade

“trade” has the same meaning as in the Income Tax Acts;

Defined in s.288(1) · see it in the full Act

(b) “trade”, “profession” and “vocation” have the same meaning as in the Income Tax Acts.

Defined in s.165(8) · see it in the full Act

(9) In this section and Schedule 7 and in determining whether a company is a trading company for the purposes of this section and that Schedule, the expression “trade” shall be taken to include the occupation of woodlands where the woodlands are managed by the occupier on a commercial basis and with a view to the realisation of profits.

Defined in s.165(9) · see it in the full Act
market value

(5AA) In this Act “market value” in relation to shares of a given class in an open-ended investment company the prices of which are published regularly by the authorised corporate director of that company (whether or not those shares are also quoted in The Stock Exchange Daily Official List) shall mean an amount equal to the price so published on the relevant date, or if no price was published on that date, on the latest date before that date.

Defined in s.272(5AA) · see it in the full Act

(5) In this Act “market value” in relation to any rights of unit holders in any unit trust scheme the buying and selling prices of which are published regularly by the managers of the scheme shall mean an amount equal to the buying price (that is the lower price) so published on the relevant date, or if none were published on that date, on the latest date before.

Defined in s.272(5) · see it in the full Act

(1) In this Act “market value” in relation to any assets means the price which those assets might reasonably be expected to fetch on a sale in the open market.

Defined in s.272(1) · see it in the full Act

(4) In particular, for the purposes of paragraphs 5 and 7 of this Schedule “market value” has the meaning given by paragraph 92 of Schedule 2 to that Act (determination of market value); and Part 8 of this Act has effect subject to this paragraph.

Defined in Sch.7D para.1(4) · see it in the full Act
allowable loss

“allowable loss” shall be construed in accordance with sections 8(2) , 16 , 16A , 261B, 261D and 263ZA ;

Defined in s.288(1) · see it in the full Act

(1) For the purposes of this Act, “allowable loss” does not include a loss accruing to a person if—

(a)it accrues to the person directly or indirectly in consequence of, or otherwise in connection with, any arrangements, and

(b)the main purpose, or one of the main purposes, of the arrangements is to secure a tax advantage.

Defined in s.16A(1) · see it in the full Act
tax

and for the purposes of this definition “tax” means capital gains tax, corporation tax or income tax.

Defined in s.16A(2) · see it in the full Act
CTA 2009

“CTA 2009” means the Corporation Tax Act 2009 ;

Defined in s.288(1) · see it in the full Act
income

(6) Sub-paragraphs (4) and (5) above apply for the purposes of paragraph (b) of sub-paragraph (1) above as they apply for the purposes of paragraph (a), reading “income” for “property".

Defined in Sch.5 para.2(6) · see it in the full Act
ITTOIA 2005

“ITTOIA 2005” means the Income Tax (Trading and Other Income) Act 2005 ;

Defined in s.288(1) · see it in the full Act
year of assessment

“year of assessment” means tax year;

Defined in s.288(1) · see it in the full Act
period of account

“period of account” has the meaning given by section 989 of ITA 2007 ;

Defined in s.288(1) · see it in the full Act
ITA 2007

“ITA 2007” means the Income Tax Act 2007 ;

Defined in s.288(1) · see it in the full Act
land

“land” includes messuages, tenements, and hereditaments, houses and buildings of any tenure;

Defined in s.288(1) · see it in the full Act

(b) “land” includes buildings.

Defined in Sch.2 para.9(5) · see it in the full Act
property

(6) Sub-paragraphs (4) and (5) above apply for the purposes of paragraph (b) of sub-paragraph (1) above as they apply for the purposes of paragraph (a), reading “income” for “property".

Defined in Sch.5 para.2(6) · see it in the full Act

(a) the reference to “assets” were a reference to “property”, and

Defined in Sch.4ZA para.22(2) · see it in the full Act
CTA 2010

“CTA 2010” means the Corporation Tax Act 2010 ;

Defined in s.288(1) · see it in the full Act

Cases considering section 161 3

New Angel Court Ltd v HM Inspector of Taxes

[2004] EWCA Civ 242 · 16 March 2004Interprets

The court described section 161 as the deeming mechanism for an individual trader’s appropriation of a non-trading asset, to which section 173(1) gives effect for intra-group transfers. (see paras [22]–[23]) Applies the deemed-disposal mechanism where an asset acquired otherwise than as trading stock is appropriated for trade purposes, producing a market-value capital gain or allowable loss. (see paras [19]; [22]–[23]) Explains the election by which a deemed allowable loss may instead be reflected in the computation of trading profits, thereby converting the loss into a trading loss for tax purposes. (see paras [19]; [22])

DMWSHNZ Ltd v HM Revenue and Customs

[2015] EWCA Civ 1036 · 20 October 2015

Cited as an example of a statutory deemed sale and reacquisition, illustrating that the Act specifies when both events are to be treated as occurring. (see para [10])

New Angel Court Ltd v Inspector of Taxes

[2003] EWHC 1876 (Ch) · 25 July 2003

Interprets the deemed-disposal rule arising where an asset acquired otherwise than as trading stock is appropriated as trading stock. The provision forms part of the statutory mechanism for bringing an existing gain or loss into account. Applies the election allowing the existing gain or loss to be reflected in the computation of trading profits instead of under section 161(1). The appellant’s claim depended on the properties having been acquired as trading stock.

What each judgment says about section 161 is in the case-law panel in the full Act.

Amendments and notes

16 notes from legislation.gov.uk

Amendments

  1. F1101Words in s. 161(1) substituted (with effect in accordance with Sch. 1 paras. 120, 123 of the amending Act) by Finance Act 2019 (c. 1), Sch. 1 para. 54(2)
  2. F1102Words in s. 161(3) substituted (with effect in accordance with s. 26(4) of the amending Act) by Finance (No. 2) Act 2017 (c. 32), s. 26(2)(a)
  3. F1103Words in s. 161(3) substituted (with effect in accordance with art. 1(3)(4) of the amending S.I.) by The Income Tax (Trading and Other Income) Act 2005 (Consequential Amendments) Order 2006 (S.I. 2006/959), arts. 1(2), 3(3)
  4. F1104Words in s. 161(3)(a) substituted (with effect in accordance with s. 1329(1) of the amending Act) by Corporation Tax Act 2009 (c. 4), s. 1329(1), Sch. 1 para. 374 (with Sch. 2 Pts. 1, 2)
  5. F1105Words in s. 161(3) substituted (with effect in accordance with s. 26(4) of the amending Act) by Finance (No. 2) Act 2017 (c. 32), s. 26(2)(b)
  6. F1106S. 161(3ZA) omitted (with effect in accordance with Sch. 1 paras. 120, 123 of the amending Act) by virtue of Finance Act 2019 (c. 1), Sch. 1 para. 54(3)
  7. F1107S. 161(3ZB) omitted (with effect in accordance with Sch. 1 paras. 120, 123 of the amending Act) by virtue of Finance Act 2019 (c. 1), Sch. 1 para. 54(3)
  8. F1108S. 161(3A) inserted (with effect in accordance with s. 135(2) of the amending Act) by Finance Act 1996 (c. 8), Sch. 21 para. 36
  9. F1109Words in s. 161(3A) omitted (with effect in accordance with Sch. 1 paras. 120, 123 of the amending Act) by virtue of Finance Act 2019 (c. 1), Sch. 1 para. 54(4)
  10. F1110Words in s. 161(3A) repealed (24.7.2002) by Finance Act 2002 (c. 23), Sch. 40 Pt. 3(16)
  11. F1111Words in s. 161(4) inserted (with effect in accordance with Sch. 25 para. 20 of the amending Act) by Finance Act 2013 (c. 29), Sch. 25 para. 11(5)
  12. F1112S. 161(5) inserted (6.4.2007) by Income Tax Act 2007 (c. 3), s. 1034(1), Sch. 1 para. 321 (with Sch. 2)
  13. F1113S. 161(5)(a) substituted (with effect in accordance with s. 82 of the amending Act) by Finance Act 2016 (c. 24), s. 79(10) (with savings in 2017 c. 32, s. 39(1)(2)) this amendment is subject to savings and/or transitional provisions, see the commentary.
  14. F1114S. 161(6) inserted (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 240 (with Sch. 2)
  15. F1115S. 161(6)(a) substituted (with effect in accordance with s. 81 of the amending Act) by Finance Act 2016 (c. 24), s. 77(9) (with savings in 2017 c. 32, s. 39(1)(2)) this amendment is subject to savings and/or transitional provisions, see the commentary.

Modifications

  1. C289S. 161 applied (with modifications) (24.7.2002) by Finance Act 2002 (c. 23), Sch. 26 para. 45(2)